AUD/JPY Forecast: Continues to See Volatility

• The AUD/JPY has gone back and forth during the trading session on Friday, as we continue to see a lot of volatility when it comes to the Japanese yen.
• Ultimately, this is a situation where we are trying to figure out whether the market is going to continue to find buyers on dips or not.
• Keep in mind that the Bank of Japan is doing everything it can to keep the interest rates down to 50 basis points on the 10-year bond, so every time interest rates rise, they must step into the market and buying those bonds. To buy a bond, they must produce yen. In other words, they are printing currency.

The Bank of Japan recently has had a nice reprieve since interest rates were dropping around the world, but the shock announcement of 518,000 jobs added in the month of January in the United States on Friday certainly has sent the bond markets all over the place. Perhaps the bond traders out there will continue to look at central banks through the prism of a tightening cycle, and if they do that will put the Bank of Japan on the back foot yet again.

Finding Buyers on Dips

The Bank of Japan unfortunately has no real good choices, because there’s too much debt in that country to let it free float as far as interest rates are concerned, but they must worry about inflation from a falling currency if they are too aggressive. At the end of the day, Japan is a bug waiting for a windshield to come along.

Looking at the start, I think you got a situation where the market continues to find buyers on dips, but we need to clear the ¥92 level on a recovery to really start getting bullish. We also have the cross current of the Australian dollar getting hammered during the trading session, so if that is a being the case the Japanese yen may be thought of as a safety currency again, so there is a lot of noise. If we were to break down below the bottom of the candlestick, then I think we could go looking to the ¥89 level in the short term where I would anticipate seeing a lot of support.