AUD/JPY Price Forecast: Strengthens to near 113.50, near-term outlook remain constructive

The Australian Dollar (AUD) against the Japanese Yen (JPY) strengthens to near 113.50, with a constructive near-term outlook remaining intact. The Japanese Yen weakens in response to fiscal concerns and persistent inflation in Japan. Traders are waiting for the release of Australian jobs data due later on Thursday. Prime Minister Sanae Takaichi's plan to reduce the consumption tax on food by half for two years has raised market concerns due to the lack of an alternative revenue source and the view that it is an ineffective method to combat inflation.

Additionally, markets are concerned about high energy costs, which are affecting Japan's oil-dependent economy and the Japanese Yen. However, there is an increasing expectation that the Bank of Japan (BoJ) will raise interest rates during its next policy meeting in September. Reuters reports that the BoJ is considering a rate hike as early as September, with overnight index swaps pricing in an approximately 80% probability of a move in that month.

DBS strategist Philip Wee notes a significant shift in market expectations for a Bank of Japan rate hike, with the odds rising from 21% to 81% and the expectation for a Federal Reserve hike falling from 72% to 32%. This shift in market-implied probabilities may lead JPY bears to underestimate the impact of a more supportive stance on higher interest rates from Prime Minister Takaichi, who is under domestic pressure to stabilize the Yen.

The AUD/JPY pair is currently trading above both the 100-day simple moving average and the Bollinger Bands middle line, indicating a firm demand zone and constructive momentum. The Relative Strength Index at 57.55 suggests a bullish outlook without reaching overbought conditions. Support levels are identified at the 100-day SMA at 113.00 and the Bollinger middle band near 112.65, while the next hurdle to watch is the lower band around 110.00.

The immediate resistance level is at the July 16 high of 113.88, leading to the July 27 high of 114.67. A daily close above the Bollinger upper band near 115.25 would signal a continuation of the uptrend.