AUD/JPY rose for a fourth day in a row in Wednesday’s Asian session, reaching its highest level since 1990. It traded around the mid-113.00s, up 0.90% on the day. The move followed firmer expectations that the Reserve Bank of Australia could raise interest rates as soon as next week. On Tuesday, RBA Deputy Governor Andrew Hauser said there would be a genuine debate on whether to raise rates at the meeting next week, due to concern about a possible war-driven rise in inflation.

Drivers Behind The Move

The Japanese yen weakened as the chance of an immediate Bank of Japan rate rise eased. Higher oil prices raised worries about slower growth and higher inflation in Japan, a major energy importer. Rising energy costs were linked to the risk of stagflation, which could complicate BoJ policy normalisation. This kept pressure on the yen and supported AUD/JPY. Some market participants expected Japanese authorities to act to limit further falls in the yen. Attention now turns to the RBA policy meeting next Tuesday. A correction dated March 11 at 08:18 GMT clarified the pair reached its highest level since 1990, not an all-time peak.

Looking Back One Year

Looking back at that period a year ago, we saw the AUD/JPY cross break above 113.00, driven by a clear divergence in central bank policy. The market was correctly pricing in imminent rate hikes from the Reserve Bank of Australia while the Bank of Japan was expected to remain passive. This was the classic setup for a strong carry trade. That fundamental trend did indeed play out, as the RBA hiked its cash rate multiple times through 2025 while the BoJ only exited its negative interest rate policy late in the year. This widening interest rate differential provided the fuel for the pair’s sustained rally. We can see from historical charts that buying during any minor dips proved to be a very profitable strategy throughout last year. Today, on March 11, 2026, the situation has matured, with the pair trading significantly higher near 118.00. The RBA cash rate is now holding steady at 4.85% after inflation proved sticky, while the BoJ’s policy rate sits at just 0.10%. The explosive upward momentum has slowed as the bulk of the central bank divergence is now priced in. For derivative traders, this means the simple strategy of buying calls may be less effective than it was when momentum was high. Instead, we should consider strategies that benefit from the large interest rate differential, such as selling out-of-the-money JPY call/AUD put options. This collects premium while the pair likely trades in a more stable, albeit elevated, range. The significant yield gap of over 4.75% still makes being long the Australian dollar attractive for its carry, or positive income. This environment favors strategies like buying AUD/JPY futures contracts and rolling them to collect the funding rate. Any pullbacks should be viewed as opportunities to enter these carry positions at better levels. We must remain vigilant for any verbal intervention from Japanese finance officials, which caused sharp but temporary drops in 2025 when the yen weakened too quickly. Furthermore, Australian inflation data is now the key driver; any signs of a faster-than-expected cooling could bring forward RBA rate cut expectations and unwind this trade. Create your live VT Markets account and start trading now.

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