So AUD/JPY hit levels we haven't seen since 1990 back in March. That kind of move doesn't happen by accident, and it tells you something pretty significant is shifting in this pair.

Let me break down what's actually driving this. The RBA has been hiking aggressively - we're now at 4.10%, the highest since 2012, and markets are pricing in another move coming up. Meanwhile, the BOJ is sitting at 0.75% and moving cautiously despite being the most hawkish they've been in decades. That rate differential is massive - we're talking 335 basis points. For carry traders, that's the entire game right there.

But here's where it gets interesting. The Middle East conflict that should be sending money into the yen as a safe haven is actually working against it. Japan imports over 90% of its energy, so rising oil prices are hitting their economy directly. Australia, on the other hand, is a net energy exporter. Higher oil means better export revenues. That asymmetry is exactly what pushed AUD to JPY to those 113.95 highs.

Then March rolled around and we saw a sharp pullback. Risk appetite dried up, carry trades got unwound, and the pair dropped over 1.3% in a single week. As of late May, AUD to JPY is hovering in the 110-112 range, which is still near the top of the 52-week band that started at 86.04.

The technicals are interesting. We're still above the 50-day EMA, but the daily RSI tipped into oversold territory. The uptrend from August 2025 lows around 94.40 is intact, but the pair needs to hold 110 to keep that structure solid. Below that and we're looking at 108.80 as the next support.

Three things are going to move this pair for the rest of 2026. First, the rate gap between RBA and BOJ. Every basis point matters here. If the RBA keeps hiking and the BOJ stays patient, that widens the carry trade advantage. If the BOJ suddenly accelerates tightening because yen weakness is becoming a problem, that changes the whole picture.

Second, oil prices and what happens in the Middle East. The current dynamic where Australian energy exports benefit while Japanese energy imports suffer is the real story nobody expected. If the conflict de-escalates and oil drops below $90, that reverses fast. The yen's safe haven status comes back and AUD/JPY falls with it.

Third, China's economic health. Australia sends most of its iron ore, coal, and LNG to China. Strong Chinese demand means higher AUD. Any weakness in Chinese PMI data hits the Australian dollar hard and pulls this pair down.

Looking at the scenarios traders are actually watching: The bullish case is Middle East tensions ease, oil pulls back, risk appetite returns, RBA hikes in May, BOJ holds steady. That breaks through 113.95 and targets 115-117 by Q3. The bearish case is conflict escalates, oil stays elevated above $110, BOJ accelerates tightening. That breaks 110 and retests 107-108. Most likely right now is actually the middle ground - geopolitical uncertainty stays contained, oil oscillates between $95-105, RBA pauses after a May hike, BOJ holds through mid-year. AUD to JPY consolidates between 109-113 for an extended period.

The 110 level is the key psychological support right now. It's a round number, aligns with the 50-day EMA, and coincides with swing highs from 1991 and 2024. That's strong confluence. If it holds, a bounce back toward 113.95 is likely. If it breaks, we're looking at 108.80 next.

This is one of those pairs where macro drivers matter more than most. The rate differential, energy dynamics, and China connection are all playing out in real time. If you're tracking this pair, those three factors are where to focus your attention.