109.00 gives way as AUD/JPY extends losses: Price Forecast remains bearish below 100-day SMA

108.90 is in focus as AUD/JPY slumps in early European trading on Friday.
Below the 100-day SMA, the cross retains a bearish bias, reinforced by negative RSI momentum.
109.15 marks the first resistance level, while immediate support stands at 108.64.

108.90 is the approximate level for AUD/JPY as it trades lower early in Friday’s European session. Safe-haven demand and signals of interest rate increases from the Bank of Japan (BoJ) are lifting the Japanese Yen (JPY) against the Australian Dollar (AUD).

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Global financial markets have been unsettled this week by concerns over closer scrutiny of the Artificial Intelligence (AI) industry, especially data centre construction. As investors seek safety, the JPY gains support and the cross faces downward pressure.

The hawkish tone of the BoJ minutes may also support further JPY gains. Released on Thursday, the minutes of the September meeting showed that most BoJ policymakers considered further interest rate rises appropriate as underlying inflation moved towards the central bank’s 2% target.

As the central bank weighed developments in the Middle East, rising demand associated with Artificial Intelligence (AI) and Foreign Exchange (FX) movements, one board member suggested there could be scope for a faster pace of interest rate increases.

BoJ minutes support further gradual tightening

In their review of central bank developments, Deutsche Bank analysts say the BoJ’s September meeting minutes "reinforced the case for further policy tightening." Policymakers, they note, "generally agreed that interest rates should continue to rise," with one member "highlighting the possibility of a faster pace of hikes." Deutsche Bank also draws attention to another policymaker, who "noted that while there was no need for immediate action, the BoJ should continue to calibrate policy carefully to prevent excessive and persistent inflationary pressures," reflecting a committee that remains cautious but clearly inclined towards tightening.

Technical Analysis: 100-day SMA caps AUD/JPY as bearish outlook persists

On the daily chart, a firm cap below both the 20-day simple moving average (SMA), the middle component of the Bollinger Bands, and the 100-day SMA maintains the near-term bearish bias in AUD/JPY. The cross is testing the bottom of its recent range, with the lower Bollinger band providing immediate overhead supply. At 36.91, the Relative Strength Index (RSI) sits just above oversold territory, suggesting continued selling pressure rather than an imminent bullish reversal.

The lower Bollinger band at 109.15 provides the first resistance on any recovery. Beyond that lie the psychological 110.00 mark and the 20-day SMA near 110.40, where selling could intensify. A sustained move above this level could open the way towards the upper Bollinger band at 111.65 and the 100-day SMA at 111.80.

Initial downside support comes from the 15 October low of 108.64. Should the cross break below it, the path would reopen towards the 13 February low of 107.70, with the 26 January low of 106.08 next in line.

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

Japanese Yen: Key Questions Answered

Which factors shape the Japanese Yen’s value?

Among the most actively traded currencies globally, the Japanese Yen (JPY) broadly reflects the performance of Japan’s economy. More specific influences include Bank of Japan policy, the gap between Japanese and US bond yields and traders’ appetite for risk, alongside other factors.

How does Bank of Japan policy affect the Yen?

Currency control forms part of the Bank of Japan’s mandate, making its actions important for the Yen. The BoJ has occasionally intervened directly in foreign exchange markets, usually to weaken the currency. Political concerns among its main trading partners, however, discourage frequent intervention. Between 2013 and 2024, its ultra-loose monetary stance drove the Yen lower against major peers as policy increasingly diverged from that of other leading central banks. The subsequent gradual withdrawal of this ultra-loose policy has provided some support for the Yen.

What does the Japan-US bond yield gap mean for the Yen?

By maintaining ultra-loose monetary policy over the past decade, the BoJ moved further apart from other central banks, notably the US Federal Reserve. That divergence helped widen the yield gap between 10-year US and Japanese bonds, supporting the US Dollar against the Japanese Yen. The gap is now narrowing following the BoJ’s 2024 decision to begin gradually exiting ultra-loose policy, alongside interest rate cuts by other major central banks.

Why does risk sentiment influence the Japanese Yen?

Investors often regard the Japanese Yen as a safe-haven asset, favouring it during market stress because of its perceived reliability and stability. Periods of turbulence are therefore likely to lift the Yen against currencies considered riskier investments.