The AUD/JPY pair started the new trading week on a bullish note, recovering a notable portion of last Friday’s sharp decline of over 250 pips, which dragged the cross down to the 97.80 region. Spot prices advanced above the key 99.00 psychological mark during the Asian session, maintaining a positive tone after the steep retracement from the 101.00 area, the highest level since November 2024.
The Arbitics team provides readers with a detailed and structured overview of the matter. This recovery reflects renewed risk appetite in the global markets, aided by improved trade sentiment and a weaker Japanese Yen (JPY). Investors appear to be rebalancing positions as the Australian Dollar (AUD) gains traction on the back of both global and domestic developments.
Political Instability Weakens the Yen
A major catalyst for the JPY’s weakness has been domestic political turbulence in Japan. The Komeito party’s decision to end its 26-year coalition with the ruling Liberal Democratic Party (LDP) has injected significant uncertainty into the country’s political landscape.
The move jeopardizes Sanae Takaichi’s prospects of becoming Japan’s first female Prime Minister, while also disrupting the government’s policy agenda.
Such political fragmentation is fueling concerns about a potential delay in the Bank of Japan’s (BoJ) policy normalization plans, particularly regarding a long-awaited rate hike. Traders now anticipate that the BoJ might maintain its ultra-loose monetary stance for longer than expected, further eroding the JPY’s safe-haven appeal.
Chinese Trade Data Fails to Dampen Aussie Strength
Interestingly, the AUD/JPY bulls remained resilient despite mixed Chinese trade data released earlier in the session. The report showed that China’s trade surplus narrowed to CNY 645.47 billion in September, down from CNY 732.7 billion previously.
However, imports surged 7.5% year-on-year, outpacing the 1.7% growth seen in August, while exports increased by 8.4%, up from 4.8% in July.
In US Dollar (USD) terms, the surplus expanded less than expected, but the overall data suggested a modest rebound in external demand and improving domestic consumption trends.
As China remains Australia’s largest trading partner, the positive tone in imports and exports data helped sustain demand for the Aussie Dollar, underpinning further gains in AUD/JPY.
RBA’s Hawkish Tone Adds Fuel to the Rally
Another crucial factor supporting the Australian Dollar has been the Reserve Bank of Australia’s (RBA) recent hawkish tone. The central bank indicated that inflation in the September quarter might come in higher than previously forecast, suggesting that price pressures remain persistent despite earlier policy tightening.
The RBA also highlighted the need for additional time to assess the effects of the 75 basis points (bps) of rate cuts implemented earlier in 2025. This cautious yet hawkish outlook reinforces the possibility of further monetary tightening or a longer pause in easing, supporting the AUD’s yield advantage over its counterparts.
Technical Outlook: 99.00 Holds as a Key Pivot
From a technical analysis perspective, AUD/JPY holding above 99.00 suggests a firm bullish undertone. Immediate resistance is seen near 99.60–99.80, followed by the psychological 100.00 mark, which, if broken decisively, could open the door toward the recent peak near 101.00.
On the downside, initial support lies at 98.40, followed by the 97.80 zone, where buying interest is expected to re-emerge. The Relative Strength Index (RSI) on the 4-hour chart remains comfortably above 50, while moving averages continue to point north, confirming the potential for further short-term gains.
Momentum indicators suggest that as long as the pair sustains above 98.50, the bulls will likely remain in control.
Outlook: Balance Between Risk Appetite and BoJ Policy
Going forward, the trajectory of AUD/JPY will likely depend on the interplay between global risk sentiment, domestic Japanese politics, and BoJ policy expectations. While the US President’s softer rhetoric has eased immediate trade-related concerns; markets will closely monitor developments in Tokyo’s political scene for potential BoJ implications.
Meanwhile, the RBA’s confidence in Australia’s economic resilience and its hawkish communication are expected to keep the Aussie Dollar well supported, especially amid firm commodity prices and solid labor market data.
Conclusion
The AUD/JPY pair’s recovery toward 99.00 underscores the market’s renewed risk appetite following the US President’s retreat from tariff threats and the RBA’s hawkish outlook. Domestic political instability in Japan continues to weigh on the Yen, while improving Asia-Pacific trade sentiment provides additional support for the Aussie Dollar.
With bullish technical signals and a supportive macroeconomic backdrop, AUD/JPY looks set to remain in an accumulation phase, potentially revisiting the 100.00–101.00 range in the near term as global investors favor risk-sensitive currencies over traditional safe havens.
