How to trade the AUD/JPY currency pair

How to trade the AUD/JPY currency pair

Reading time: 14 minutes

In a market that reached US$9.5 trillion per day in trading – according to the Bank for International Settlements Triennial Bank Survey – foreign exchange (or ‘Forex’ [FX]) is understandably one of the most closely monitored (and traded) markets in the world.

FX is made up of currency pairs, which effectively ‘pair’ two currencies together. For example, EUR/USD represents the euro versus the US dollar. This is the most widely traded currency pair globally, and it tells investors the rate at which euros can be exchanged for US dollars.

Highly traded pairs are often termed ‘majors’ and include the USD, while pairs that do not include the USD are referred to as ‘minors’ or ‘crosses’. This is where the AUD/JPY fits in – the Australian dollar against the Japanese yen – which is the focus of this article.

Introducing the AUD/JPY currency pair

AUD/JPY pairs a commodity-linked currency tied to global growth and risk appetite (AUD) with a traditional safe-haven currency shaped by low interest rates (JPY). Another way to look at it is as a risk-on/risk-off proxy. For example, a rally in AUD/JPY tends to signal increased risk appetite, while a falling pair points to caution/stress in global markets.

While this currency pair offers invaluable insight into global market sentiment, the rate gap between the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ) has been narrowing in 2026 as the BoJ normalises policy. This means the BoJ is moving policy back to what is considered ordinary, which, in this case, involves raising rates and scaling back bond purchases (or winding down quantitative easing). This, of course, weakens a popular trading approach called the ‘carry trade’, which I will explain in more detail below.

Ultimately, I want this guide to give you a foundation to build on, so you can better understand this market's price movements. Consequently, I will cover its key drivers, a handful of trading strategies, and risk management. As a point of reference, traders generally refer to buying as ‘going long’ and selling as ‘going short’. In this case, going long (short) would mean you expect the AUD to appreciate (depreciate) against the JPY. Because yen pairs are quoted to two decimal places, a pip (the standard unit of price movement) is 0.01, not the 0.0001 used for most other pairs. For example, a move from 100.00 to 100.50 is 50 pips.

What moves the AUD/JPY?

Unfortunately, there is not one driver behind the AUD/JPY pair’s movement; if it was, following its price action, and importantly, trading it, would be more straightforward.

For me, central bank policy – the RBA and BoJ – is top of mind. This narrative ultimately drives momentum in AUD/JPY. Rate expectations are key. Commonly, traders track OIS (Overnight Index Swaps) and STIR (Short-Term Interest Rate) futures to assess rate pricing. Here, you are looking for the overarching bias. Is one central bank hawkish and actively raising rates (or expected to)?

Both the RBA and the BoJ hold 8 meetings per year, and traders monitor the rate decision and how it compares with market expectations. They also closely watch forward guidance (essentially, this is the central bank’s language – are they more hawkish or dovish, for example) and the quarterly updated economic projections. If the RBA comes out more hawkish while the BoJ echoes a strong desire to hold or cut rates, this will generally keep the AUD/JPY supported.

The next stop for traders is often economic data. If this is your first time looking at an economic calendar, do not overcomplicate it. Traders generally focus on three key economic indicators, including inflation (prices), jobs, and growth (Gross Domestic Product [or GDP]). You will often find that professional FX traders track what the central banks are monitoring. For example, if inflation has upside risk and central banks have explicitly noted that this could lead to a rate increase, then inflation indicators for that country will take precedence.

Positioning then comes into play. For this, you can use CFTC (Commodity Futures Trading Commission) data, which you can easily chart for free on TradingView. The core idea behind tracking this flow is to simply take advantage of stretched positioning. I predominantly track large speculators – these are hedge funds and CTAs (Commodity Trading Advisors). For example, if positioning shows crowded long AUD and crowded short JPY, the market is already leaning heavily one way. If an adverse catalyst then hits, such as a weak Australian jobs report or a risk-off shock, those traders may rush to close their positions at the same time, which can trigger a sharp and sizeable unwind in AUD/JPY.

Additional drivers to consider are commodity prices and China, safe-haven flows, intervention operations and geopolitical events. Because the AUD is tied to resource exports and Chinese demand, shifts in commodity markets and China's economy can move AUD/JPY independently of interest rate expectations. On the yen side, the currency's safe-haven status and the risk of government intervention can cause sudden, outsized moves that interest rate differentials alone will not explain. Together, these factors help explain why AUD/JPY can swing sharply even when central bank policy has not changed.

AUD/JPY trading strategies

There are literally hundreds of different ways to trade AUD/JPY. I have noted a handful of what I consider to be most practical.

‘Carry Trade’ strategy

The logic behind the Carry Trade is that you enter long AUD/JPY, collect interest payments every day and hope the pair either trades flat or appreciates – obviously, the latter would be more profitable. The carry trade is a strategy in which investors borrow yen at low interest rates and use it to buy higher-yielding assets in other currencies, aiming to pocket the difference. The interest differential has narrowed as the BoJ has raised rates, so the carry advantage is not what it once was.

To be clear, this does not involve physically travelling to Japan, opening a bank account and taking out a loan in yen. It is all done electronically. For most retail FX traders, if you are long AUD/JPY, this means you have effectively borrowed/sold JPY to buy AUD, and the broker, in this case, credits your account based on the rate differential if you hold the position overnight. This is called ‘swap’ or ‘rollover’. If you were short this pair, the broker would debit your account by the difference, as you sold a higher-yielding currency for a lower-yielding one.

If you are long AUD/JPY and capturing ‘carry’, what happens if the pair falls? This is the exchange rate risk. In this case, your position will be negatively affected, and the unrealised loss will likely exceed the carry you earned by holding.

For institutions, the carry trade strategy can be executed in several ways, from borrowing directly in the interbank market, through the repo market, and through FX swaps.

News event trading strategy

News trading involves tracking the key drivers I mentioned above. Central bank meetings, employment data, and inflation reports can produce big moves. Some traders position ahead of events; others wait for the initial reaction and trade the follow-through. I would consider this an advanced trading strategy, but with determination and a willingness to learn, it's worth considering.

Suppose the RBA is hawkish, explicitly stating that it stands ready to raise rates amid rising inflation. If inflation data comes in much lower than expected, what do you think will happen to the AUD when markets are positioned for a hawkish RBA (traders are long the AUD)? All things being equal, this should see AUD buyers unwind some of their positions, which would add fuel to AUD downside, and this is a trading opportunity.

Trend following strategy

You only have to look at the daily timeframe of AUD/JPY to see that it typically trends. Common ways to identify and trade the trend include moving averages, basic technical indicators like the Average Directional Index (ADX), support and resistance, and trendlines. To help identify a trend, you can also keep things very simple and track obvious higher highs and higher lows (for an uptrend) and lower lows and lower highs (for a downtrend).

Moving averages offer a dynamic way of trading a trending market, from focussing on ‘crossovers’ – this is where a lower period moving average crosses above (signal to consider longs) or below (shorting signal) a higher period moving average – to something as simple as following the direction of the moving average (if it is pointing up, this is a signal that buyers are in control).

Support, resistance, and trendlines are key to understand. Even if you do not adopt a trend-following approach, having at least a basic comprehension of this structure will help you organise your charts. For trend following, some traders simply plot support and resistance, and then look to trade the breakout of a breached level; more conservative traders will likely want at least a retest of the breached level to form before pulling the trigger. Importantly, however, the breakout should always be in the direction of the underlying trend. The goal is to capture much of a sustained move while cutting losses quickly if the trend fails.

One thing I would strongly advise newer traders to do is to avoid stacking too many indicators. You really do not want your charts to be cluttered; they should be clean and easy to read.

Traders are risk managers first and foremost

As traders, I often say that we are risk managers first and foremost. You can have the world’s greatest approach – one that provides a solid win rate and an attractive risk-reward ratio – but without risk management, your trading account is unlikely to last long. One market shock can wipe out months of profit and potentially your entire capital base.

As a result, a well-defined risk management approach is key. It need not be an elaborate system, but you must have at least a solid understanding of margin and leverage, position sizing, risk-reward metrics, and protective stop-loss orders.

While it is certainly beyond the scope of this article to cover each in detail, I would start by reading about margin and leverage here. Once you understand these concepts, I would read up on stop-loss orders and pips. You will need to know this before calculating your position size. Then, from a trade-management perspective, I would consider risk-reward. Ideally, you want to target more than 1:1 unless you have a high win rate.

Final thoughts

AUD/JPY offers insight into how the market views global risk sentiment. This – coupled with its noticeable trending nature, high liquidity (ease at which you can buy and sell), sufficient volatility, and carry opportunities – undoubtedly makes it an interesting currency pair to watch and trade.

Trading this pair usually comes down to a handful of key factors: understanding the RBA and BoJ, aligning with relevant economic data, and recognising how currencies are positioned. Technical analysis knowledge is also extremely beneficial, particularly for trend followers.

If you are just beginning to trade the FX market, start with a demo account, journal everything, learn from mistakes, and stay open to learning every day.

Written by FP Markets Chief Market Analyst, Aaron Hill