AUD/JPY Poised to Retest 35-Year High as Yen Intervention Fades, Strategists Say

The Australian dollar is poised to resume its climb against the Japanese yen, with some strategists forecasting a return toward a 35-year high as the effects of Tokyo's recent currency intervention fade. The rally is underpinned by a stark policy divergence between a hawkish Reserve Bank of Australia (RBA) and the low-interest-rate environment in Japan.

Intervention's Impact Wanes

The AUD/JPY currency pair has entered a recovery phase after a sharp sell-off triggered by Japan's market intervention. The cross had plunged over 4% to near the 109 level but has since rebounded, closing last week at 111.52.

Market participants increasingly view the support for the yen as temporary. "The adjustment on the yen side is basically complete," said Mahabin Zaman, Head of FX Research at ANZ Group, in a note. Zaman added that the probability of further unilateral intervention by Japan is low, particularly after signals from the U.S. regarding potential coordinated action.

Rate Differential in Focus

The primary driver for the pair's expected ascent is the significant interest rate differential. Traders are now looking ahead to the RBA's interest rate decision on August 11. While the central bank is widely expected to hold rates steady, swaps markets are pricing in a roughly 50% chance of a 25-basis-point hike by the end of the year.

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This hawkish expectation was reinforced by recent comments from RBA Governor Michele Bullock, who affirmed that policymakers would not hesitate to raise rates further if necessary. In contrast, Japan's monetary policy remains accommodative. "A likely hawkish stance from the RBA next week, coupled with the fading effects of the intervention, supports the AUD/JPY," said David Forrester, a senior FX strategist at Crédit Agricole CIB.

Market Outlook

Sentiment in the derivatives market reflects this shift, with the premium on one-month options hedging against an AUD/JPY decline falling significantly over the past week as traders unwind bearish bets.

Nick Twidale, chief market analyst at AT Global Markets Australia, projects the pair will rise toward its late-July levels if no new yen-support measures emerge. He identified an initial target of 113.38, with stronger resistance at the year-to-date high near 114.80.

However, not all analysts are convinced of a sustained rally. Samara Hammod, a currency strategist at Commonwealth Bank of Australia, suggested upside is limited once the recent correction is complete. She forecasts the cross rate will fall back to 108 by the end of the quarter, citing an expectation that the RBA will hold rates before eventually cutting, alongside pressure from a broadly stronger U.S. dollar.