AUD/JPY climbs above mid-96.00s after Chinese data; upside potential seems limited

• AUD/JPY stages a modest recovery from a nearly one-month low touched earlier this Friday.
• The mostly upbeat Chinese macro data underpins the Aussie and lends support to spot prices.
• Bets for another BoJ rate hike next week favors the JPY bulls and cap the upside for the cross.

The AUD/JPY cross recovers slightly from a nearly one-month low, around the 96.26 region touched during the Asian session on Friday and for now, seems to have snapped a two-day losing streak. Spot prices stick to modest intraday gains near mid-96.00s following the release of Chinese macro data, though the fundamental backdrop warrants some caution for bullish traders. 

The National Bureau of Statistics (NBS) reported that China's economy expanded by 5.4% over the year in the fourth quarter of 2024 after recording a 4.6% growth in the previous quarter. This was well above consensus estimates for a reading of 5% and was accompanied by better-than-expected Retail Sales, which increased by 3.7% in December as compared to 3% prior. Adding to this, Industrial Production arrived at 6.2% vs. 5.4% forecast, while the Fixed Asset Investment advanced 3.2% year-to-date (YTD) YoY in December, providing a modest lift to the China-proxy Aussie.

Apart from this, a modest downtick in the Japanese Yen (JPY) lends some support to the AUD/JPY cross. Any meaningful JPY depreciation, however, seems elusive in the wake of rising bets that the Bank of Japan (BoJ) will hike interest rates again next week. The expectations were reaffirmed by the recent remarks from BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino. This, along with a softer risk tone and worries about US President-elect Donald Trump's tariff plans, could underpin the safe-haven JPY and cap the perceived riskier Australian Dollar (AUD). 

Furthermore, the Reserve Bank of Australia's (RBA) dovish shift warrants some caution before positioning for any further near-term appreciating move for the AUD/JPY cross. Traders might also opt to move to the sidelines and keenly await the highly-anticipated BoJ monetary policy meeting on January 23-24 to confirm the next leg of a directional move for spot prices.