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AUD/JPY at 36-Year High: Two Central Banks Tighten, Yen Weakens

The AUD/JPY pair attracted attention today by reaching a 36-year high of 114.96. This move occurred despite tightening policies from the Reserve Bank of Australia and the Bank of Japan.

Different Paths of Central Banks

Reserve Bank of Australia (RBA): The RBA kept interest rates unchanged at its August meeting, maintaining its tightening trend despite slowing inflation data. Governor Michele Bullock stated that policymakers need more data before considering rate cuts. Rigidity in the labor market supports wage increases, which is increasing inflationary pressures.

Bank of Japan (BoJ): The BoJ is gradually raising interest rates from the beginning of 2026. The policy rate, which was raised to 0.75% in July, is expected to reach 1.0% in September. The Bank of Japan (BoJ) emphasizes that despite interest rate hikes, monetary policy remains expansionary, putting pressure on the yen.

Why is the Yen Weakening?

The fact that AUD/JPY has reached 114.80 despite both central banks being on the tightening side clearly demonstrates the weakness of the yen. Several factors underlie this:

Wide Interest Rate Spread: Australian bond yields are much higher than Japan's. The 10-year Australian government bond yield is trading at around 4.3%, while the 10-year Japanese bond yield is around 1.15%. This wide interest rate spread makes carry trades attractive.

Trade Balance: Japan's trade balance has been in deficit for the past five months. The weak yen is increasing import bills, further widening the trade deficit.

Strength of the Dollar: The general strengthening of the US dollar is putting additional pressure on the yen. The Fed's decision to keep interest rates high to combat inflation is causing a move away from risky assets.

Technical Outlook

AUD/JPY is in a three-week uptrend and trading above all major moving averages (50, 100, 200-day). The daily RSI is at 68, close to but not yet touching the overbought zone. The psychological resistance level of 115 is seen as a short-term target. On pullbacks, 112.75 (50-day SMA) can be watched as the first support.

The AUD/JPY pair is at a 36-year high, influenced by the interest rate differential between Australia and Japan, global risk appetite, and structural differences in trade balances. Although both central banks are pursuing tightening policies, the weakness of the yen remains a decisive factor in the pair's rise. Eyes will be on RBA Governor Bullock's speech next week and the BoJ's September meeting.

These assessments and comments are my personal opinions. They are not investment advice.

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