111.50: AUD/JPY slips below level as price forecast retains bearish bias under 100-day SMA

• 111.25 is in focus as AUD/JPY slips in early European trading on Thursday.
• Although the cross retains a bearish bias, RSI above the midpoint leaves scope for a short-lived recovery.
• 110.40 marks initial support, while 111.45 presents the first resistance level.

AUD/JPY is lower at around 111.25. The cross remains under pressure in Thursday’s early European session. Ahead of Friday’s Tokyo Consumer Price Index (CPI) inflation figures and Bank of Japan (BoJ) interest rate decision, markets could adopt a more cautious stance later in the day.

At its October policy meeting, the BoJ is expected to hold interest rates at 1.25%. Reuters reports suggest the Japanese central bank is also anticipated to announce at this meeting that its 2% “underlying inflation” target has been achieved.

The BoJ press conference will provide further guidance for traders, potentially clarifying the timing and pace of additional rate increases. Hawkish signals from officials could strengthen the Japanese Yen (JPY) against the Australian Dollar (AUD).

By contrast, stronger Australian CPI inflation figures have reinforced expectations of rate increases by the Reserve Bank of Australia (RBA). That could help contain losses in the Aussie.

According to the ASX RBA Rate Tracker, the market-implied probability of a rate increase to 4.85% at the next RBA Board meeting is now nearly 82%. Before Australia’s CPI release, the probability stood at 62%.

December in focus for Yen as BoJ assesses resilience to higher rates

December signals, rather than Friday morning’s Bank of Japan meeting itself, are the priority for currency markets, according to Commerzbank analysts. They note that “few expect the meeting itself to deliver a rate change.” Expectations centre on the overnight rate “remaining at 1.25%, and none of the economists surveyed by Bloomberg expects a hike this week.” The analysts argue that “the more important question will therefore be what the BoJ signals about December,” with current market pricing reflecting “an around 80% probability of a rate hike by then, in line with our own expectation that the BoJ will raise the policy rate to 1.5%.” Supporting that assessment, Commerzbank says “recent BoJ communication, alongside the economic backdrop, increasingly suggests that the next step towards policy normalization is approaching.”

The BoJ’s financial-system risk assessment provides another element of support. Commerzbank notes that “additional support for this view came from the BoJ's semi-annual report on risks to the financial system.” Despite being “hardly the most obvious source of monetary policy signals,” the report “suggests that higher rates should remain manageable for Japan's financial system.” The central bank’s stress test indicates that “even a rise in the policy rate to 2% should not pose major problems for Japanese banks and companies,” adding that “the increase to 1.25% has already been absorbed without significant disruption, as has the rise in longer-term government bond yields.” Commerzbank emphasises the BoJ’s clarification that “the 2% assumption is not a forecast but merely part of the stress test scenario.” Even so, the analysts consider that “the message for FX markets is noteworthy: financial stability does not appear to be a binding constraint on further policy normalization.” Although “Friday itself may therefore provide only limited fresh momentum for the yen,” Commerzbank maintains that its “structurally constructive view on the Japanese currency remains intact.”

2% inflation commitment from Warsh keeps Dollar bulls focused

A 7/10 FXS Speechtracker score, matching the historical average, captures the firmly hawkish tone of Warsh’s press conference and his consistent stance against inflation. His statement that “ensuring price stability is not about a fixed date on a calendar” points to an approach driven by data and outcomes. References to “new monetary medicine,” September’s withdrawal of accommodation and inflation expectations “going the right way” towards the 2% PCE target reinforce that message. By repeatedly pledging “no ifs and or buts, we will deliver price stability” and dismissing any “soft inflation target”, Warsh signals a firm willingness to tighten policy when necessary. This backdrop generally favours the Dollar while pressuring risk-sensitive assets, especially technology and AI, where he says interest rates are now clearly having an effect.

With a rise of +14.39 points to 141.89, the FXS Fed Sentiment Index moved firmly into hawkish territory. The increase indicates a substantial shift towards expectations of tighter policy relative to the established baseline. Alongside the steady 7/10 FXS Speechtracker reading, it suggests markets are adjusting to a more aggressive Fed reaction function. As investors factor in a sustained commitment to suppressing inflation, the implications include a stronger Dollar and higher yields.

Technical Outlook: 100-day SMA continues to cap AUD/JPY

Trading below both the 100-day simple moving average (SMA) and the upper Bollinger band leaves AUD/JPY with a modest bearish bias on the daily chart. Nevertheless, the Bollinger middle band continues to underpin prices. A 14-day Relative Strength Index (RSI) reading of 55 points to improving momentum that is not yet stretched, within a wider corrective phase.

The Bollinger middle band near 110.40 provides the first downside support, with the psychological 110.00 threshold next. Should that level give way, the decline could extend towards the lower Bollinger band around 109.35. Stronger buying interest could materialise there if the cross’s pullback continues.

At 111.45, the upper Bollinger band offers immediate resistance. Beyond it, the 100-day SMA at 112.00 adds another barrier, with the two levels limiting further gains. A sustained break above this level could open the way to the 18 August high of 113.61.

(The technical analysis of this story was written with the help of an AI tool. Know more.)