AUD/JPY surges above 84.00 on Tuesday as yen battered by global yield rally

• The yen got broadly battered on Tuesday amid a sharp rise in global developed market bond yields.
• The pair is now eyeing a break above key trendline resistance and a move to 84.50.

AUD/JPY surged nearly 1.5% on Tuesday, its largest one-day move since October, and has in recent trade moved above the 84.00 level for the first time since early November. With Monday’s stumble that saw the pair drop momentarily back below the 83.00 level now well in the rear-view mirror, AUD/JPY is looking to break above a resistance trendline that has been capping the price action going back to 8 December, so for nearly one-month. At current levels, the pair trades about 0.5% higher on the week. A clean break above this trendline and the 84.00 level would open the door to a move to the next area of resistance around 84.50. Longer-term bulls will likely be betting on an eventual move back to Q4 2021 highs around 86.00.

In terms of the drivers of Tuesday’s strength, the first thing to note is that Monday’s drop never really made that much sense at the time anyway. Recall, that the pair dropped under 83.00, its worst decline in over a month, despite gains in strongly risk-on market conditions in global equity, bond and commodity markets. FX markets seem to have recognised the error of their ways on Tuesday and, amid a continued surge in long-term global developed market yields (including in Australia), have sent the yield-sensitive yen decisively lower. After all, if global bond, equity and commodity markets are moving to price in a rosier long-term economic outlook, it makes sense for AUD/JPY to move higher, not lower.