AUD/JPY Falls as Yen Rally Overshadows Strong Chinese Inflation

Traders' Opinions

Summary:

AUD/JPY falls toward 110.80 as rising BoJ rate-hike expectations strengthen the Yen, overshadowing firmer Chinese inflation and hawkish RBA signals. Both central banks are leaning toward tighter policy, but the near-term momentum currently favours the JPY.

SELL AUDJPY

EXP

TRADING

110.800

Entry Price

107.000

113.000

110.882 -0.227 -0.20%

0.0

Pips

Flat

107.000

Exit Price

110.800

Entry Price

113.000

AUD/JPY remains under pressure on Wednesday, falling around 0.27% to 110.80 as growing expectations of tighter Bank of Japan policy outweigh supportive developments for the Australian Dollar. The Aussie has struggled to capitalize on stronger Chinese inflation figures, leaving Yen strength as the dominant force behind the cross.

China delivered a generally encouraging inflation report. CPI accelerated to 0.8% year-on-year in August from 0.5%, while monthly prices increased 0.4%, slightly exceeding expectations for 0.3%. Producer inflation was also firmer, with PPI rising 3.8% annually, above both July's 3.5% increase and the 3.7% forecast.

The figures ease some concerns surrounding Chinese demand and would ordinarily provide support to the Australian Dollar given Australia's close trade relationship with China. This time, however, the impact has been overshadowed by a rapidly changing Japanese monetary-policy outlook.

Expectations are building that the BoJ could raise rates at its upcoming meeting, while speculation has emerged that policymakers could consider an unusually aggressive 50-basis-point increase. Rabobank noted that such a move would be the first of that magnitude since 1989, highlighting how dramatically expectations surrounding Japanese policy have shifted.

The Yen has received additional support from US Treasury Secretary Scott Bessent, whose comments warned investors against positioning aggressively against the Japanese currency. His remarks also reinforced expectations of close coordination between US and Japanese authorities regarding excessive currency movements and potential intervention.

Australia's monetary backdrop remains supportive in its own right. RBA Deputy Governor Andrew Hauser has maintained a hawkish tone on inflation, encouraging expectations that further tightening may still be necessary. Markets are consequently considering the possibility of additional RBA action in the coming months.

However, the immediate policy momentum currently appears stronger on the Japanese side. The prospect of a BoJ hike, speculation surrounding an even larger move and renewed intervention concerns are encouraging traders to unwind bearish Yen positions.

As a result, AUD/JPY remains caught between two increasingly hawkish central banks, but the Yen currently holds the advantage. Unless expectations surrounding the BoJ soften, short-term recoveries in the cross could remain limited even with the RBA maintaining a restrictive stance.

Technical Analysis

AUD/JPY remains firmly tilted to the downside on the 4-hour chart, with the decline from the late-August peak near 114.80 developing into a clear sequence of lower highs and lower lows. Price has fallen through several established support areas and is now trading around 110.78, leaving the broader structure increasingly vulnerable to another extension lower.

The latest weakness follows the loss of the 112.40–112.60 region, which had previously provided an important base for the cross. Attempts to recover above this area were quickly rejected, allowing sellers to extend the decline toward 111.00. More importantly, price is now struggling beneath the 111.10–111.30 zone, suggesting that former support is beginning to act as resistance.

A brief recovery remains possible following the speed of the recent decline. AUD/JPY could retest 111.10–111.30 before sellers attempt to regain control. As long as the cross remains below this region, however, such rebounds are likely to represent corrective moves within the broader bearish structure.

The first major downside area sits around 109.20–109.40, where the chart shows a significant demand zone that previously triggered a strong recovery in early August. This level could temporarily slow the decline, but a decisive break beneath it would considerably weaken the technical picture and expose the psychological 108.00 region, which aligns closely with the projected bearish extension.

For the immediate bearish outlook to lose momentum, buyers would need to reclaim 111.30 and subsequently push above 112.40–112.60. Until then, the succession of broken support levels and weak recovery attempts continues to favour sellers.

The preferred scenario therefore remains a short-term corrective bounce followed by another leg lower, initially targeting 109.30 before a possible extension toward 108.00.

TRADE RECOMMENDATION

SELL AUD/JPY

ENTRY PRICE: 110.80

STOP LOSS: 113.00

TAKE PROFIT: 107.00

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AUD/JPY Falls as Yen Rally Overshadows Strong Chinese Inflation

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