AUD/JPY Price Forecast: Trades lower below 111.50 as bearish bias persists beneath the 100-day SMA

• Near 111.25, AUD/JPY trades lower in early European dealings on Thursday.
• Although the cross retains a bearish bias, the RSI’s position above its midpoint leaves scope for a short-lived recovery.
• Support initially lies at 110.40, while 111.45 marks the nearest resistance.

With Tokyo’s Consumer Price Index (CPI) inflation report and the Bank of Japan (BoJ) interest rate decision due on Friday, markets could become more cautious later in the day. AUD/JPY is trading lower at around 111.25 in Thursday’s early European session.

An unchanged interest rate of 1.25% is expected at the BoJ’s October policy meeting. Reuters reports suggest the Japanese central bank is also expected to announce at this meeting that its 2% “underlying inflation” target has been reached.

For further guidance, traders will look to the BoJ press conference, which may shed light on the timing and pace of additional rate increases. Hawkish signals from BoJ officials could strengthen the Japanese Yen (JPY) against the Australian Dollar (AUD).

By contrast, stronger Australian CPI inflation figures have reinforced expectations that the Reserve Bank of Australia (RBA) will raise rates. Those expectations could help contain losses in the Aussie.

According to the ASX RBA Rate Tracker, the implied probability of a rate rise to 4.85% at the next RBA Board meeting is now nearly 82%. Before the release of Australia’s CPI figures, markets had put the odds at 62%.

Yen outlook turns to December as BoJ assesses resilience to higher rates

December’s policy signals matter more for FX markets than Friday morning’s Bank of Japan meeting, according to Commerzbank analysts, who note that “few expect the meeting itself to deliver a rate change.” Expectations point to the overnight rate “remaining at 1.25%, and none of the economists surveyed by Bloomberg expects a hike this week.” The analysts argue that “the more important question will therefore be what the BoJ signals about December,” with current market pricing reflecting “an around 80% probability of a rate hike by then, in line with our own expectation that the BoJ will raise the policy rate to 1.5%.” Commerzbank adds that “recent BoJ communication, alongside the economic backdrop, increasingly suggests that the next step towards policy normalization is approaching.”

Turning to evidence supporting that outlook, the analysts say “additional support for this view came from the BoJ's semi-annual report on risks to the financial system.” The report, though “hardly the most obvious source of monetary policy signals,” nevertheless “suggests that higher rates should remain manageable for Japan's financial system.” The BoJ’s stress test indicates that “even a rise in the policy rate to 2% should not pose major problems for Japanese banks and companies,” while observing that “the increase to 1.25% has already been absorbed without significant disruption, as has the rise in longer-term government bond yields.” Commerzbank emphasises the BoJ’s explicit qualification that “the 2% assumption is not a forecast but merely part of the stress test scenario.” Even so, the analysts believe that “the message for FX markets is noteworthy: financial stability does not appear to be a binding constraint on further policy normalization.” Although “Friday itself may therefore provide only limited fresh momentum for the yen,” the bank therefore maintains that its “structurally constructive view on the Japanese currency remains intact.”

Warsh’s firm commitment to 2% inflation keeps Dollar bulls attentive

At 7/10, the FXS Speechtracker score matches its historical average and reflects Warsh’s distinctly hawkish tone at the press conference, reinforcing a consistent stance against inflation. His insistence that “ensuring price stability is not about a fixed date on a calendar” points to an approach guided by data and outcomes. References to “new monetary medicine,” the withdrawal of accommodation in September and confidence that inflation expectations are “going the right way” towards the 2% PCE target support that reading. A firm willingness to tighten policy when necessary is also evident in repeated assurances of “no ifs and or buts, we will deliver price stability” and the rejection of any “soft inflation target”. Such a backdrop generally favours the Dollar and puts pressure on risk-sensitive assets, especially technology and AI, where Warsh says interest rates are now having a clear impact.

A rise of +14.39 points took the FXS Fed Sentiment Index to 141.89, placing it firmly in hawkish territory and indicating a substantial shift towards tighter policy expectations compared with the established baseline. Alongside the unchanged FXS Speechtracker reading of 7/10, the increase suggests markets are adjusting to a more forceful Fed policy response. As investors factor in a sustained determination to bring inflation under control, that reassessment has implications for a stronger Dollar and higher yields.

Technical Outlook: AUD/JPY trades below the 100-day SMA

With AUD/JPY below both its 100-day simple moving average (SMA) and the upper Bollinger band, the daily chart continues to show a modest bearish bias. Nevertheless, the middle Bollinger band is providing support. A 14-day Relative Strength Index (RSI) reading of 55 points to improving momentum that is not yet overstretched, within a wider corrective phase.

The middle Bollinger band, around 110.40, offers the first downside support, with the psychological 110.00 mark next in line. Should that level give way, attention could turn to firmer support near 109.35 at the lower Bollinger band. Stronger buying interest could appear there if the cross’s retreat continues.

The upper Bollinger band at 111.45 provides the nearest upside resistance, followed by the 100-day SMA at 112.00. Together, these levels constrain further gains. A sustained move above this level could open the way for a rise towards the 18 August high of 113.61.

(The technical analysis of this story was written with the help of an AI tool. Know more.)