AUD/JPY remains on the defensive near 96.65 area, downside seems cushioned

The AUD/JPY cross ticks lower during the Asian session on Tuesday, though it lacks follow-through and remains confined in the previous day's narrow trading range. Spot prices currently hover around the 96.60-96.65 area, down less than 0.10% for the day.

The Japanese Yen (JPY) continues with its relative underperformance amid the growing acceptance that the Bank of Japan (BoJ) will forgo raising interest rates this year in anticipation of the economic fallout from higher US tariffs. Apart from this, domestic political uncertainty, along with the optimism led by US President Donald Trump's willingness to engage in trade negotiations, undermines the safe-haven JPY and acts as a tailwind for the AUD/JPY cross.

Having issued tariff notices to more than 20 countries and announcing a 50% tariff on copper imports last week, Trump softened his stance on Monday and fueled hopes that trade deals could be struck before the August 1 deadline for reciprocal tariffs. This helped ease concerns about a global trade war and boosts investors' appetite for riskier assets, which is evident from a generally positive tone around the equity markets and dents demand for safe-haven assets.

The Australian Dollar (AUD), on the other hand, draws support from the better-than-expected China's GDP print, which showed that the economy expanded at an annual rate of 5.2% in the second quarter of 2025. Adding to this, China’s Industrial Production rose 6.8% in June vs. 5.6% estimated and 5.8% prior, while annual Retail Sales increased by 4.8% vs. 5.6% expected and 6.4% in May. Moreover, China's Fixed Asset Investment advanced 2.8% year-to-date (YTD) in June.

This turns out to be another factor lending support to the AUD/JPY cross, suggesting that any meaningful corrective pullback might still be seen as a buying opportunity and is more likely to remain cushioned.