AUD/JPY moves below 95.00 due to hawkish BoJ, glooming China economy

• AUD/JPY depreciates due to the hawkish mood surrounding the BoJ interest rates outlook.
• Rabobank economists highlighted that JPY net long positions were at their highest level since October 2016.
• The Australian Dollar struggles due to rising concerns over China’s economic outlook.

AUD/JPY holds losses, trading around 94.90 during the Asian hours on Tuesday. The downside of the AUD/JPY cross is driven by the hawkish sentiment surrounding the Bank of Japan (BoJ) interest rates outlook.

Rabobank economists Jane Foley and Molly Schwartz highlighted on Monday that JPY net long positions were at their highest level since October 2016. While there is minimal expectation for a rate hike by the Bank of Japan at its policy meeting on Friday, traders will be closely watching for any hints that October could potentially be a more active meeting.

Reuters reported on Tuesday that Japanese Finance Minister Shunichi Suzuki stated that rapid foreign exchange (FX) fluctuations are undesirable. Suzuki emphasized that officials will closely monitor how FX movements affect the Japanese economy and people’s livelihoods. The government will continue to assess the impact of a stronger Japanese Yen and respond accordingly.

The Australian Dollar (AUD) receives downward pressure from rising fears over China’s economic outlook. Analysts noted that the latest weak economic data indicates serious challenges for the world’s second-largest economy. Since China is a key trading partner for Australia, fluctuations in China’s economic health can have a significant effect on the Australian market.

Economists at Goldman Sachs and Citi have reduced their 2024 GDP growth forecasts for China to 4.7%, falling short of Beijing’s target of around 5.0%. SocGen describes the situation as a “downward spiral,” while Barclays calls it “from bad to worse” and a “vicious cycle.” Morgan Stanley also cautions that “things could get worse before they get better,” according to a Reuters report.