AUD/JPY continues its upward surge, reaching the mid-106.00s, marking its strongest level since July 2024 as the JPY shows significant weakness

AUD/JPY Extends Rally to New 2024 Highs

The AUD/JPY pair continues its upward momentum for a third straight session, reaching its highest level since July 2024 near the 106.50-106.55 range during Tuesday’s Asian trading hours. Current market dynamics remain supportive of further gains, indicating that the pair is likely to maintain its bullish trajectory.

Uncertainty surrounding the Bank of Japan’s (BoJ) next interest rate decision, combined with speculation that Prime Minister Sanae Takaichi could call an early election, has weighed on the Japanese Yen (JPY). Takaichi’s strong approval ratings suggest that an election victory would reinforce her mandate to pursue expansionary fiscal measures. These expectations have propelled the Nikkei 225 to new record highs, diminishing the JPY’s appeal as a safe-haven and boosting demand for the risk-sensitive Australian Dollar (AUD).

Additionally, escalating tensions between Japan and China have further pressured the JPY. Last week, China imposed an immediate ban on certain rare earth exports to Japan, intensifying supply chain concerns for Japanese industries amid ongoing diplomatic disputes over Taiwan. Meanwhile, the AUD has found support from growing speculation that the Reserve Bank of Australia (RBA) may tighten monetary policy in the near future.

These factors collectively reinforce a positive short-term outlook for AUD/JPY. However, traders should remain alert to the possibility of intervention. On Tuesday, Japan’s Finance Minister Satsuki Katayama revealed she had discussed the JPY’s recent sharp decline with US Treasury Secretary Scott Bessent, emphasizing that tolerance for further weakness is limited. This has fueled speculation that Japanese authorities may act to stabilize the currency.

Moreover, expectations that the BoJ will continue its gradual policy normalization could deter aggressive selling of the JPY. Technical indicators also suggest that the pair is approaching overbought territory, which may limit additional upside in the near term. Nevertheless, the recent breakout above the 105.50 resistance and sustained movement beyond 106.00 imply that any short-term pullbacks could present new buying opportunities for traders.