Bullish view
- Buy the AUD/JPY pair and set a take-profit at 110.5.
- Add a stop-loss at 108.50.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/JPY pair and set a take-profit at 108.50.
- Add a stop-loss at 110.50.
The AUD/JPY exchange rate continued its strong rally, reaching its highest level in decades as the ongoing Japanese yen retreat and the hawkish Reserve Bank of Australia (RBA) interest rate decision. It rose to a high of 110.15, up sharply from the 2025 low of 86.
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Hawkish RBA Interest Rate Decision
The AUD/JPY pair continued rising this week after the Reserve Bank of Australia decided to hike interest rates by 0.25% to 3.85% as it battled the persistent inflation in the country.
The most recent data showed that the headline and the weighted mean Consumer Price Index (CPI) moved further away from the bank's target of between 2% and 3%. At the same, the economy is operating at capacity, with the unemployment rate continuing its strong downward trend.
The AUD/JPY exchange rate continued rising as investors waited for the upcoming Japanese election, which will take place on February 8. Most analysts believe that Sanae Takaichi will win by far, giving her a full mandate to execute her policies.
Takaichi has pledged to execute policies similar to those of Shinzo Abe who focused on easy money strategies. She has already provided stimulus worth billions of dollars and her campaign has pledged to cut taxes.
These policies will likely lead to higher inflation, pushing the Bank of Japan to deliver more interest rate hikes in the coming meetings. The bank has already hiked interest rates by 0.25% this year.
AUD/JPY Technical Analysis
The weekly chart shows that the AUD/JPY exchange rate has been in a strong uptrend in the past few months, moving from a low of 86.14 in April to the current 109.90. It has crossed the important resistance level at 109.38, its highest level in July 2024.
The pair has remained above the 50-week and 200-week Exponential Moving Averages since July last year. At the same time, the Average Directional Index (ADX) has jumped to 34, a sign that the bullish momentum is continuing. The Relative Strength Index (RSI) has continued rising.
Therefore, the most likely scenario is where the AUD/JPY pair continues rising as bulls target the next key resistance level at 110 ahead of the upcoming Japanese election.