AUD/JPY is preparing for a possible bullish breakout towards… 120 psychological levelThe next step will likely be determined by a high-risk group of… Bank of Japan policy and Australian inflation data. Today’s bounce suggests that the pair may be poised to resume its long-term uptrend, but confirmation now depends on how these two key catalysts play out.
the Bank of Japan It is at the heart of the near-term risks. The decision, once seen as a direct suspension, has evolved into a “knife-edge” call as inflation widens across the economy. While the base case remained unchanged at 0.75%, the risk of a spike has crept back into the conversation, especially ahead of the updated quarterly forecast report, which is expected to show higher inflation expectations for FY2026.
but, The stronger market reaction may come from inaction rather than action. With a weaker yen already the dominant theme, a stagnant Bank of Japan lacking conviction or forward guidance could lead to renewed selling pressures. Markets are already anticipating a strong chance of a rate hike in June, but without a clear signal, expectations may be pushed further, leaving the yen vulnerable.
At the same time, Australian This side of the equation is becoming more supportive. Inflation is expected to accelerate sharply, with the quarterly CPI rising from 3.6% y/y to over 4.0% y/y, and the monthly CPI jumping from 3.7% y/y to 4.8% y/y as the oil shock continues. If the easing intermediate measures also surprise to the upside, it will effectively validate the RBA’s May hike and increase the likelihood of additional tightening.
This creates a classic divergence trade. The Bank of Japan’s hesitation combined with a more hawkish RBA outlook creates asymmetric upside risks for AUD/JPY. In this environment, even a neutral BoJ result could be interpreted as bearish for the yen, while strong Australian data would provide fuel for a sustained higher move.
There is also the risk that markets will move Before confirming. The Bank of Japan’s stability alone could lead to a breakout attempt, as traders brace for continued weakness in the yen. But the durability and strength of any rally is likely to depend on the Australian CPI reading, which could determine whether the move extends into an acceleration of the broader trend.
Technicallythe setting approaches the trigger point. AUD/JPY is testing the 114.35 resistance level, and a breakout will open the way to the 38.2% forecast from 96.24 to 113.94 from 108.77 at 115.53 initially. A decisive break there would likely accelerate the upside to the 61.8% forecast at 119.70, which is close to the psychological level of 120.
However, failure to break higher will not invalidate the broader bullish structure. A drop below 113.63 would simply extend the consolidation from 114.35 with another downward leg, potentially creating a stronger base before the next wave higher.
