Just been looking at the aussie yen and something pretty wild is happening here. AUD/JPY hit levels we haven't seen since 1990 back in March, and honestly that kind of move doesn't happen by accident. There's real structural stuff driving this.

So here's what's actually going on. The RBA just hiked twice this year and brought rates to 4.10%, the highest since 2012. Markets are pricing in another hike for May. Meanwhile the BOJ is sitting at 0.75% and moving at a snail's pace even though they're supposedly in tightening mode. That yield gap is sitting at like 335 basis points right now. For carry traders that's basically the entire trade.

But here's where it gets interesting. Australia is a net energy exporter, right? So when oil is running hot because of Middle East tensions, Australia's actually making money off it while Japan is bleeding out on import costs. That's flipping the usual safe haven dynamics. The yen should be rallying into conflict but it's not, because Japan imports 90% of its energy. The same crisis that normally sends money into yen is actually hurting Japan's economy. That's the twist nobody saw coming.

The pair pushed all the way to 113.95 in early March but then pulled back hard when risk sentiment turned. We're sitting around 110 to 112 now as of mid-May. The technical setup shows we're still above the 50-day but RSI is getting extended. The key level to watch is 110. That's where the uptrend from August 2025 would break if we fall through. Below that and you're looking at 107 to 108.

Three things matter for the rest of the year. First is the rate gap. Every basis point counts. If RBA keeps hiking and BOJ stays patient, that gap widens and supports the aussie yen. Second is oil. Anything above 100 helps Australia and hurts Japan. If it crashes back under 90 the whole dynamic flips. Third is China. Australia ships most of its commodities there, so if Chinese demand softens, AUD gets hit hard.

Scenario one is bullish. Geopolitical tensions ease, oil pulls back, risk appetite returns, carry trade regains footing. You'd see a break above 113.95 targeting the 115 to 117 zone. Scenario two is the unwind. Conflict escalates, BOJ accelerates tightening, carry trade implodes. Pair breaks 110 and retests 107 to 108. Scenario three is the most likely near term honestly. Uncertainty stays contained, oil bounces between 95 and 105, consolidation between 109 and 113. That's tradeable if you're patient.

The thing about trading this pair is the 24-5 forex hours mean you can actually position around RBA and BOJ announcements. Those are the real price movers. If you're looking to trade the aussie yen, you've got options to go long or short depending on which scenario you think plays out. Just watch the technicals and don't get caught overleveraged in a scenario two unwind.