APAC Outlook: 'Takaichi Trade' Returns to Tokyo; RBA Hike Bets Propel Aussie Dollar

Asian currency markets occupy the epicenter of current Forex volatility, driven by diverging monetary policy expectations in Australia and high-stakes political maneuvering in Japan. The AUD/USD pair has staged a technical breakout, while the Japanese Yen (JPY) faces renewed selling pressure despite recent intervention efforts.

Australia: The Hawk of the Pacific

The Australian Dollar has surged to 0.6940, its highest level since October 2024, driven by a hawkish repricing of RBA policy. With domestic inflation proving sticky—housing costs are up 5.2%—markets are betting on a policy pivot.

• Rate Hike Probability: Futures markets now price a 60% chance of an RBA cash rate hike to 4.60% (up from 4.35%) at the February meeting.
• Mortgage Rates: Major banks, including NAB, have preemptively raised fixed mortgage rates by up to 0.40%, signaling tight liquidity conditions ahead.

Technicals

• The AUD/USD breakout above 0.6750 confirms a bullish trend structure.
• Analysts target a move toward 0.7140 if momentum above 0.6940 sustains.

Japan: Election Risk and the 'Takaichi Trade'

In Tokyo, the focus has shifted to the snap election scheduled for February 8. Forex traders are increasingly betting on a strong mandate for Sanae Takaichi, a proponent of aggressive fiscal spending and ultra-loose monetary policy.

Isolating the “Takaichi Trade” implies a potential return to Yen weakness (USD/JPY upside) post-election, countering the recent effects of joint US-Japan “rate checks.” While the Ministry of Finance's verbal intervention temporarily strengthened the Yen, the prospect of a government prioritizing reflation over currency stability is keeping JPY bulls cautious. The market remains in a tug-of-war between weak US fundamentals (pushing USD/JPY down) and Japanese political risks (pushing JPY down).