AUD/JPY rose to about 114.05 in early European trade on Wednesday, with the Australian Dollar gaining on a hawkish tone from the Reserve Bank of Australia. The Japanese Yen may strengthen if risk conditions worsen, which can weigh on the pair.
US President Donald Trump said on Tuesday he is extending the ceasefire with Iran at Pakistan’s request while waiting for a “unified proposal” from Tehran, as the US military keeps a blockade of Iranian ports. Markets are watching US-Iran peace talks, and a longer conflict could lift the safe-haven Yen.
On the daily chart, the pair remains above the 20-day simple moving average and the 100-day exponential moving average. Price is near the upper Bollinger Band, and the Relative Strength Index is 68.62, just below overbought.
Resistance is near the upper Bollinger Band at 115.35. Support sits around the Bollinger middle band at 111.90, then near the 100-day EMA at 108.55 and the lower Bollinger Band at 108.45.
The Yen is shaped by Japan’s economic performance, Bank of Japan policy, yield gaps with US bonds, and market risk tone. The BoJ used ultra-loose policy from 2013 to 2024, then began a gradual unwind in 2024, which has helped narrow the bond-yield gap.
Given the Reserve Bank of Australia’s hawkish outlook, we see the Australian dollar maintaining its strength in the near term. With Australia’s most recent quarterly inflation data for Q1 2026 coming in at 3.8%, slightly above expectations, the case for holding long AUD positions remains compelling. This policy divergence with the Bank of Japan continues to be the primary driver for the AUD/JPY cross.
For the coming weeks, we believe using call options to gain upside exposure is a sound strategy, especially with the clear bullish momentum on the daily chart. However, with the Relative Strength Index nearing overbought levels at 68.62, it is prudent to set take-profit targets around the 115.35 resistance level. Traders might also consider selling higher-strike calls to create a spread, which can offset the cost of the initial position.
The gradual policy normalization from the Bank of Japan, which began back in 2024, remains a key risk factor that could strengthen the yen unexpectedly. Therefore, we are layering in protective put options with strike prices below the initial support level of 111.90. This provides a safety net against any sudden shifts in sentiment or a surprisingly firm statement from the BoJ.
The ceasefire between the US and Iran is currently suppressing the yen’s safe-haven appeal, which is favorable for this pair. Any sign of these peace talks faltering could cause a rapid reversal as capital flows back into the yen. We are holding a small number of cheap, out-of-the-money JPY call options as a low-cost hedge against such a geopolitical event.
We remember how this pair reacted during the global growth scares in the third quarter of 2025, when it dropped sharply as investors sought the yen’s stability. While the environment is different now, the US-Japan 10-year bond yield spread has also narrowed by 10 basis points over the last month, slightly eroding the carry trade appeal that was so strong last year. This historical behavior reinforces our decision to remain hedged against downside risk.
