Executive Summary
AUD/JPY trades at 109.67, sitting at the 85th percentile of its 52-week range after rallying approximately 16% over the past year from its April 2025 low near 86.05. The pair has pulled back 2.5% over the past month from its March 11 cycle high of 113.95, as a combination of BoJ hawkishness and Iran-US war risk-off sentiment exerts downward pressure. The dominant bilateral narrative is a tug-of-war between the widest RBA-BoJ policy rate differential in G10 (+335bps) — with the RBA actively hiking and the BoJ poised to follow — and the pair's extreme sensitivity to global risk appetite, where the Iran-US conflict has broken the traditional carry trade mechanics. The key bilateral insight not visible in either standalone dossier is the energy terms-of-trade asymmetry: Australia is a net energy exporter benefiting from the oil shock (coal +40%, LNG +85%), while Japan imports ~90% of its energy and is haemorrhaging on its trade balance — a dynamic that structurally supports AUD/JPY even as the risk-off headline narrative argues for JPY strength. Our tactical stance is bearish AUD/JPY with low conviction (2/5) on the view that the imminent BoJ hike on April 27-28, MoF intervention risk at USD/JPY 160, and positioning unwind in both legs create asymmetric downside risk over 2-4 weeks. Strategically, we are moderately bullish AUD/JPY (3/5) as the carry differential, Australia's structural commodity tailwind, and PPP undervaluation of the pair versus fair value at ~98.5 should reassert once geopolitical fog clears.