Is the yen intervention just a flash in the pan? Strategists are optimistic about the Australian dollar regaining upward momentum against the yen or returning to a 35-year high.

As the effects of Japanese authorities' intervention gradually wane, coupled with the Reserve Bank of Australia's hawkish stance, strategists expect the AUD/JPY exchange rate to rise again towards its 35-year high. After experiencing intervention in the Japanese foreign exchange market and a decline of more than 4% to around the 109 level, the currency pair has now entered a rebound phase, closing last week at around 111.52. The market anticipates further recovery, indicating that the support provided by Japanese authorities' intervention may be short-lived, especially in the face of high-yielding currencies. With the Reserve Bank of Australia's next interest rate decision approaching, analysts are increasingly confident that interest rate differentials will outweigh the impact of Japanese officials' interventions. "The adjustment on the yen side is basically complete," said Mahbub Zaman, head of foreign exchange research at ANZ Group. She added that given the clear signals from the U.S. regarding potential coordinated action, the possibility of further unilateral intervention by Japan is low. Regarding the Australian dollar, Zaman expects the Reserve Bank to maintain a hawkish tone amid geopolitical and energy price uncertainties. "Improving terms of trade for commodities will support the Australian dollar, enabling it to maintain resilience in cross-currency pairs." Market sentiment shifts have been reflected in the derivatives market. Over the past week, the premiums for one-month options to hedge against declines in AUD/JPY have significantly decreased, showing that traders are gradually abandoning bearish bets. AT Global Markets Australia expects that if no new yen-supporting measures are introduced by Japanese and U.S. authorities in the short term, AUD/JPY will recover to levels seen in late July. Chief Market Analyst Nick Twidale stated that improving geopolitical sentiment could further boost the Australian dollar. "The initial target is 113.38, the low from July 29, with stronger resistance around the year's high of 114.80." He pointed out that interest rate differentials are a key driving factor for the currency's previous rise towards the 115 mark. Traders are currently focusing on the interest rate decision that the Reserve Bank of Australia will announce on August 11. The market generally expects the central bank to keep interest rates unchanged, but the swap market still prices in about a 50% chance for a 25 basis point hike by the end of the year. This expectation is supported by comments from Reserve Bank Governor Michelle Bullock at the end of last month, when she confirmed that policymakers would not hesitate to raise rates further if necessary. However, not all market participants believe the Reserve Bank's stance will support a sustained strength of the Australian dollar. Samara Hamoud, a foreign exchange strategist at Commonwealth Bank of Australia, cautioned that once the recent pullback is fully repaired, the upside potential for AUD/JPY will be limited, predicting that the cross rate will fall back to around 108 by the end of the quarter. She anticipates that the Reserve Bank will keep interest rates unchanged this year before starting a rate cut cycle, while the Australian dollar will also face additional pressure from the overall strength of the U.S. dollar. Despite this, some analysts believe that the macro environment remains favorable for the Australian dollar. "The Reserve Bank is likely to maintain a hawkish stance next week, combined with the gradual fading of intervention effects, which will provide support for AUD/JPY," said David Forester, senior foreign exchange strategist at Crdit Agricole.