• AUD/JPY softens to near 110.50 in Monday’s early European session.
• The cross keeps a negative bias below the 100-day SMA, with bearish RSI momentum.
• The first upside barrier emerges at 110.60; the initial support level to watch is 110.00.

The AUD/JPY cross trades in negative territory around 110.50 during the early European trading hours on Monday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD), with trading activity expected to remain subdued due to a national holiday in Japan. Traders remain on high alert for currency intervention from Japanese authorities to proop up the JPY.

Meanwhile, uncertainty persisted over whether the Bank of Japan (BoJ) would raise interest rates again this month, although markets continued to anticipate a possible move in December or January.

Bank of Japan (BoJ) Governor Kazuo Ueda last week said that the central bank would “assess the likelihood and risks of the baseline economic and price outlook being realized” when considering the pace and timing of future rate increases. BoJ Ayano Sato stated that she supported a gradual approach to raising interest rates in multiple stages.

Japanese bond outflows reshape global yield dynamics and subtly aid the Euro

Strategists at Commerzbank highlight a notable shift in Japan’s role within global fixed income markets, pointing out that “over the past twelve months, Japanese investors have sold JPY 5tn (around EUR 30bn) more in foreign bonds than they have purchased.” They stress that such sustained net selling is rare, noting that “over the past 20 years, there have been only three episodes in which Japanese investors were significant net sellers of foreign bonds on a rolling 12-month basis: in 2013-14, in the aftermath of the pandemic in 2022-23, and over the past three months.”

Against the backdrop of recent volatility in European rates, Commerzbank acknowledges that “Japanese investors have indeed been net sellers of long-term French bonds over the past twelve months, and cumulative net purchases since early 2014 have declined noticeably since the pandemic,” but emphasises that “they have already returned as buyers over the past three months.” On this basis, the bank argues that “it therefore appears unlikely that Japanese investors were responsible for, or even materially contributed to, the recent dislocations in the French bond market.”

More broadly, Commerzbank cautions that “indirectly, however, it clearly matters for global bond markets whether Japanese investors are reliable buyers of foreign bonds month after month or whether, as has been the case over the past twelve months, they turn into net sellers,” adding that “there is likely a connection between the rise in global yields and the growing reluctance of Japanese investors to allocate money abroad.” The composition of those flows is also important: “interestingly, however, Japanese investors have primarily been selling US bonds in recent months. From that perspective, Japanese bond flows have recently provided some support to the euro relative to the US dollar.”

BoJ’s Sato backs gradual tightening but rejects preset rate path

Sato’s 6.4/10 score matches the historic average on FXS Speechtracker, signaling no clear hawkish or dovish shift versus usual communication. Endorsing gradual interest rate adjustment while refusing a preset hiking path points to cautious normalization that limits immediate upside for the Yen.

The emphasis on policy independence alongside alignment with proactive fiscal support suggests scope for steady, data-dependent tightening rather than aggressive moves. Noting that price risks tilt slightly higher on rising oil costs from the Middle East conflict adds a mild hawkish bias at the margin, which could underpin the Yen on dips if incoming data confirm persistent inflation pressures.

Technical Analysis: Negative outlook for AUD/JPY remains intact below the 100-day SMA

In the daily chart, AUD/JPY keeps a bearish near-term bias as spot holds beneath the Bollinger middle band and well under the 100-day Simple Moving Average (SMA). The pair is pinned in the lower half of the recent Bollinger envelope, while the 14-period Relative Strength Index (RSI) around 46 stays below the neutral 50 line, hinting that downside pressure still dominates despite the lack of oversold extremes.

On the topside, initial resistance level is located at the Bollinger middle band / 20-period SMA near 110.60. Further north, the next hurdle to watch is the August 10 low of 111.63, en route to the upper boundary of Bollinger band at 112.10, and then the 100-day SMA at 112.40. 

On the downside, the next notable technical floor emerges at the 110.00 psychological level. Any follow-through selling below this level could expose the lower limit of the Bollinger band around 109.05, followed by the October 1 low of 108.71, where a break would reopen scope for a deeper slide.