So AUD/JPY just hit levels we haven't seen since 1990. That's the kind of move that makes you stop and ask what's actually going on here.

I've been watching this pair closely, and the story is pretty fascinating. The Australian dollar has been climbing steadily while the yen keeps struggling despite everything that should be supporting it. The carry trade is still alive, but it's under real pressure right now. Let me break down what's driving this yen forecast and where things could go from here.

First, the price action itself. We saw AUD/JPY push all the way to 113.95 back in early March when the RBA hiked rates and everyone started expecting another hike. Then reality hit. Middle East tensions spiked, risk appetite vanished, and the pair dropped over 1.3% in a single week. By mid-April, we were trading in the 110-112 range. As of late May, that's roughly where we're sitting, having pulled back from those March extremes.

The 52-week range is 86.04 to 114.04, so we're near the top. Technically, the pair is still above the 50-day moving average, but the RSI is in oversold territory. The uptrend from August 2025 lows around 94.40 is still intact though. The key support everyone's watching is 110. If that breaks, the structure falls apart.

Here's what makes this interesting from a macro perspective. The RBA has hiked twice in 2026 and brought rates to 4.10% - the highest since 2012. Markets are pricing in another hike for May, which could push rates to 4.61% by year-end. That makes the RBA one of the most hawkish central banks in the G10. Meanwhile, the BOJ held at 0.75% in March - the highest since 1995 - but the pace is glacial. Even at those levels, Japanese real rates are deeply negative because inflation is running hot. The yield gap between Australia and Japan sits around 335 basis points. For carry traders, that's the whole ballgame.

But here's the twist that caught most people off-guard. The Middle East conflict should have sent money rushing into the yen as a safe haven. Except Japan imports over 90% of its energy. With oil near $100-110 a barrel, that's creating stagflation concerns in Japan. So the same crisis that should be supporting the yen is actually working against it. Australia, being a net energy exporter, is quietly benefiting from higher oil prices. The RBA Governor has made clear that energy-driven inflation could force more tightening. That's structurally bullish for AUD/JPY.

Looking ahead, three things will probably move this pair. First, every basis point of the RBA-BOJ gap matters. If the RBA keeps hiking and the BOJ stays patient, that widens the spread. But if BOJ Governor Ueda accelerates tightening because yen weakness is causing problems at home, the gap narrows fast. Second, oil prices and geopolitics. If the Middle East stays hot and oil stays above $100, that's good for Australia and bad for Japan. If tensions ease and oil drops below $90, the yen's safe haven appeal comes back and AUD/JPY could reverse hard. Third, China's economic health. Australia ships most of its iron ore, coal, and LNG to China. Strong Chinese demand means stronger Australian exports and a stronger AUD.

Technically, 110 is the line in the sand right now. It's a psychological round number, it aligns with the 50-day EMA, and it coincides with 1991 and 2024 swing highs. That's real confluence. If we hold there, a bounce back toward 113.95 is likely. Break below 110 and the next floor is around 108.80. On the upside, 113.95 is the resistance. A weekly close above that opens the door to 115-117.

So what are the realistic scenarios? Bullish case: Middle East tensions ease, oil pulls back below $90, risk appetite returns. RBA hikes in May, BOJ holds. Carry trade regains footing. AUD/JPY breaks above 113.95 and targets 115-117 by Q3. The pullback becomes a buying opportunity in hindsight. Bearish case: Conflict escalates, oil pushes above $110 and stays there. BOJ accelerates tightening as yen weakness fuels domestic inflation. Carry trade unwinds sharply. AUD/JPY breaks 110, loses support, retests 107-108. That's the scenario that punishes overleveraged longs. Range case: Geopolitical situation stays uncertain but contained. Oil oscillates between $95-105. RBA pauses after May. BOJ holds steady. AUD/JPY consolidates between 109-113 for an extended period. Honestly, this is probably the most likely near-term scenario, and it's still tradeable if you're comfortable with swing trading.

The mechanics are straightforward. You can trade AUD/JPY via CFDs if you want exposure to any of these scenarios. Go long if you think the Australian dollar strengthens against the yen. Go short if you think it falls. The beauty of forex is you can trade 24/5 around central bank announcements, which are the biggest price movers for this pair. If you're new to it, demo accounts let you practice with virtual funds first.

Bottom line: We're in an interesting spot with this yen forecast. The structural setup still favors the carry trade, but geopolitical risk is real and the technicals are starting to show stress. Watch that 110 level closely over the next few weeks. That's your tell for whether we're heading higher or rolling over.