AUD/JPY Price Forecast: Rally Extends Toward 114.30 as Hawkish RBA Bets Accelerate

AUD/JPY extended its upward momentum during the European session on Wednesday, currently trading at 114.18751, having touched near 114.30 earlier at the time of writing.

**Hawkish Expectations Support AUD Buying**

Institutional assessments of the Reserve Bank of Australia's policy trajectory are the core driver behind the current Australian dollar rally. TD Securities expects the RBA to hold rates at 4.35%, noting that overnight index swap pricing indicates a near-zero probability of a rate hike, while also anticipating the RBA to resist significantly downgrading its inflation forecasts, citing elevated oil prices as a persistent upside risk to the inflation outlook. Abhijit Surya, Senior Economist for Asia-Pacific at Capital Economics, noted that the RBA has only "slightly" softened its hawkish stance, reiterating that further rate hikes are not ruled out if upside risks materialize. Commonwealth Bank of Australia also stated that its base case remains for the RBA to hold rates steady while maintaining hawkish language, and that a substantial downward revision to inflation forecasts could be interpreted by markets as opening the door to subsequent easing.

**Yen Under Pressure, Strengthening Carry Trade Logic**

Meanwhile, weakness on the yen side is also contributing to AUD/JPY's upside. Reports indicate that market expectations for a near-term rate hike in Japan have cooled following cautious remarks from Bank of Japan Governor Kazuo Ueda, leaving the yen lagging. This backdrop further reinforces the carry trade logic of "borrowing low-yield yen to buy high-yield Australian dollar assets."

**Risk Sentiment in Sync, but Upside Risks Warrant Attention**

Bloomberg strategist Brendan Fagan previously noted that the positive correlation between the Australian dollar and the S&P 500 has risen to its highest level this year, making it a high-beta tool for expressing global risk sentiment. However, market analyst Nick Twidale cautioned that holding positions in this direction could face significant stress during periods of heightened market volatility. Commonwealth Bank strategist Carol Kong also warned that geopolitical uncertainty remains a potential disruptive factor, urging investors to stay vigilant.