The AUD/JPY pair is losing momentum to around 104.00, snapping a six-day winning streak during the early European session on Wednesday. Deeper than expected producer contraction data from China undermines the Australian Dollar (AUD) against the Japanese Yen (JPY). However, concerns over Japan’s expansionary fiscal measures and growth concerns may limit the pair’s downside.
Data released by China’s National Bureau of Statistics on Wednesday showed that China’s producer price index fell 2.2% year-on-year in November, after a 2.1% decline in October. The data came in deeper than market expectations of -2.0%. These data highlight the challenge facing policymakers in reviving domestic demand amid ongoing trade tensions.
Meanwhile, China’s consumer inflation rose in November to its highest level in nearly two years, with the CPI rising 0.7% year-on-year in November, versus a 0.2% increase previously. The average market expectation was 0.7% during the mentioned period. On a monthly basis, China’s CPI inflation reached -0.1% m/m in November, compared to a rise of 0.2% in October.
Technical analysis:
On the daily chart, the AUD/JPY pair is trading at 104.00. The 20-day simple moving average inside the Bollinger Band oscillator has placed higher slopes below the price, while the 100-day simple moving average is higher at 98.91, reinforcing the constructive uptrend. Staying above these averages keeps the bias bullish, and a pullback towards the moving average (EMA) would test broader trend support.
The Bollinger bands widen as the price moves towards the upper band, indicating strong upward momentum and an extended advance. The RSI at 70.60 is in overbought territory and could limit near-term gains. Initial support is at the middle band near 102.02, with the lower band at 100.03 as the next cushion. A daily close above the top of the range would extend the upside, while failure to maintain the middle range could lead to a deeper bounce.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most widely traded currencies in the world. Their value is determined broadly by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the spread between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the powers of the Bank of Japan is to control the currency, so its movements are key to the yen. The Bank of Japan has intervened directly in currency markets on occasion, generally to devalue the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The Bank of Japan’s ultra-loose monetary policy between 2013 and 2024 caused the yen to depreciate against its major counterparts due to the growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual dismantling of this ultra-lenient policy has given the yen some support.
Over the past decade, the Bank of Japan’s ultra-loose monetary policy stance has led to widening policy divergence with other central banks, especially the US Federal Reserve. This supported the widening of the spread between the US and Japanese 10-year bonds, which favored the US dollar against the Japanese yen. The Bank of Japan’s decision in 2024 to gradually abandon ultra-loose policy, along with interest rate cuts at other major central banks, are narrowing this spread.
The Japanese yen is often viewed as a safe investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency because of its supposed reliability and stability. Turbulent times are likely to strengthen the value of the yen against other currencies that are considered riskier to invest in.
