What is the AUD/JPY?
AUD/JPY is the currency pair that shows the value of the Australian Dollar against the Japanese Yen. The left side of the pair is called the base currency, in this case the AUD, and the right side is called the quote currency, in this case the JPY. This exchange rate tells you how many Yen you need to buy one Australian Dollar. For example, if the AUD/JPY pair is trading at 93.70, it means that you need 93.70 Yen to buy one Australian Dollar. So, when the pair is going up in price, the Australian Dollar is said to be appreciating or getting stronger and the Japanese Yen is depreciating or getting weaker, and vice versa when the pair is going down in price.
What are the most important AUD/JPY charts to follow?
There are different ways you can display the exchange rate price movements on a chart. The most common ways include a line chart or a bar chart, but the most popular and used one is the candlestick chart. The candlestick chart shows you instantly and in real time where the price has opened, closed and how much up and down it went on any given timeframe.
Let’s say you want to check AUD/JPY price on a daily timeframe. You go to your charting software, select the timeframe and select the candlestick chart (if it’s not set by default). This is what you would see on tradingview.com
Is AUD/JPY a good pair to trade for beginners?
AUD/JPY can be a very good pair to trade when you have a monetary policy divergence between the two central banks backing the currencies, the Reserve Bank of Australia (RBA) for the AUD and the Bank of Japan (BoJ) for the JPY. For example, if the Reserve Bank of Australia is raising interest rates and the Bank of Japan is keeping them at zero, then you have a policy divergence and, in such cases, you would see the relative currency pair appreciate or going up. Moreover, the JPY is considered a safe haven currency and it sees inflows when there’s risk aversion in the market. This makes JPY pairs sensitive to the risk sentiment and you will see AUD/JPY going up when there’s risk on sentiment and going down when there’s risk off sentiment.
What session is best to trade the AUD/JPY?
The best times to trade AUD/JPY is during the European and North American Session. This is because in the Asia-Pacific (APAC) Session there’s less volume and even though the news for Australia and Japan are released in the APAC session and can offer good trading opportunities, the movements get extended during the next two major sessions.
Moreover, in the North American session you get the news for US. US news are always the most important as the US is the biggest economy in the world and it can single-handedly spur global growth or bring the whole world into a recession as we saw in the 2008 with the Global Financial Crisis (GFC). The Federal Reserve is also the most important central bank in the world. That’s why US news move the AUD/JPY pair even though there’s no USD in the pair.
Is the AUD/JPY an important pair?
AUD/JPY is a popular currency pair among retail traders due to its volatility. The Yen strength though is important for the Japanese because the Japanese economy is export oriented and the value of the Yen can impact different things from the profits companies earn to the inflation rate in the overall economy. The Japanese prefer a weak Yen because it increases exports, but they don’t like an appreciation or depreciation that is too fast and goes on for too long. If the AUD is getting stronger against the Yen, then it increases the purchasing power of Australian consumers and businesses who can buy more Japanese goods and services. On the other hand, a strong Yen decreases the purchasing power of the Australian people who may want to buy less Japanese stuff and therefore decreases Japanese exports.
Will the AUD/JPY go up or down?
In the current context of monetary policy divergence between the Reserve Bank of Australia hiking rates and the Bank of Japan keeping them at zero and doing quantitative easing (QE), the AUD/JPY pair rallied for years now. Since the trough in 2020 to the current level, the pair appreciated more than 64% and more than 20% since the divergence started to become stronger in 2022. But what are the reasons for JPY to appreciate when inflation starts to clearly ease, and the global growth outlook worsens even more? I think the central banks will keep on tightening even during the recession and that will weigh on growth. This will lower inflation and maybe even lead to some deflation. In turn the central banks will respond with rate cuts and that expectation will void the monetary policy divergence. The Yen safe haven status coupled with the unwinding of the carry trades we saw up to now on policy divergence, will lead to more and more appreciation.
How do mineral prices impact the AUD/JPY?
Australia is one of the world’s major exporters of minerals like coal, iron ore, lead, zinc, aluminium and so on. For this reason, there’s some correlation between the Australian currency and the prices of minerals. The impact from higher mineral prices can be seen more clearly when global growth swings from expansion to recession. When there’s growth, there’s more demand for minerals and thus Australia can sell more and earn more, ultimately favouring the currency as the added risk appetite in the market pushes the AUD up. On the other hand, when global growth is slowing down or even goes into recession, you can see both mineral prices and AUD suffering and tumbling as there’s less demand for minerals and the risk aversion in the market pushes AUD down.
Does market risk appetite affect the AUD/JPY?
The AUD/JPY pair is one of the most sensitive pairs to risk sentiment. So, when there’s risk aversion in the market you can generally see the JPY appreciate and when there’s risk taking sentiment in the market you can see the AUD getting bid. You can see in the chart below how the VIX, which is a S&P500 volatility index that rises when there’s risk aversion in the market, correlates with AUD/JPY and the pair goes down when VIX goes up and vice versa.
How to trade the AUD/JPY?
The best way to trade currencies in general is to have a fundamental idea for direction, which is generally based on macroeconomics such as central bank’s monetary policy, growth, inflation and so on, and technical analysis for risk management. For example, let’s say that you have the monetary policy divergence between the Reserve Bank of Australia and the BoJ telling you that fundamentally the pair should go up. So, you will want to mainly take long positions. You also need to manage your risk though. Where can you enter in order to have a small risk exposure but a bigger profit potential? You can use technical analysis.
So, you open the AUD/JPY chart and use technical concepts like support and resistance, trendlines, indicators and so on to decide where to open a trade. For example, in the chart below you can see how you could use a symmetrical triangle pattern to take advantage of the subsequent breakout and momentum to the upside. You could have placed an order when the price broke the high of the triangle and place a stop loss below the breakout line of the triangle. The possible gain could have been at least three times what you risked as the target for triangles is generally equal to length of the previous leg that led to the triangle consolidation.
Where can I trade AUD/JPY?
You can trade AUD/JPY or any other Forex pair with a broker. Always choose a good, reputable and regulated broker to avoid unnecessary problems. When you open a trading account with a broker, you will have to deposit money to be able to trade and then use the broker trading platform to execute your trades. Most retail brokers let you trade on MetaTrader 4 or MetaTrader 5, which are two of the most famous and popular trading platforms among retail traders. Most retail brokers offer CFD trading for Forex, although you can also trade AUD/JPY via other derivatives like futures or options that are more expensive than CFDs.
AUD/JPY correlation
What drives the AUD/JPY pair the most is monetary policy divergence between the RBA and the BoJ and risk sentiment. In normal times, when there’s risk on sentiment you can see the AUD/JPY appreciating all else being equal, while during risk off flows you can see the JPY gaining strength. The other driver as previously mentioned is monetary policy divergence. This divergence increases or decreases the so-called yield spread, which is the differential between Australian Government Bonds returns versus the Japanese ones. Investors generally want the highest profits for the least amount of risk.
So, when the Australian yields are rising, investors prefer to buy Australian assets which means selling Yen and buying Australian Dollars and vice versa when yields in Australia fall or the Japanese ones rise. In the chart below you can see how the AUD/JPY pair is correlated with the spread between the Australian and Japanese bond yields.
You can also see the correlation that shows how the JPY pairs are sensitive to risk sentiment by comparing AUD/JPY to other JPY pairs. In the example below you can see the correlation between AUD/JPY, NZD/JPY, CAD/JPY and GBP/JPY. Notice how they all look similar.
