AUD/JPY trims the intraday losses, trades below 94.00

• AUD/JPY recovers from the intraday losses amid BoJ’s hawkish comments.
• BoJ Governor Kazuo Ueda suggested the odds of interest rate hikes in the future.
• Investors turn cautious as China’s weak demand weakens the Australian Dollar (AUD).

AUD/JPY trades lower around 94.00 during the Asian session on Monday, trimming the intraday losses. However, the Japanese Yen (JPY) has gained strength in response to the hawkish comments made by Bank of Japan (BoJ) Governor Kazuo Ueda over the weekend.

Ueda suggested the possibility of future interest rate hikes, which exert downward pressure on the AUD/JPY pair. Ueda indicated that the central bank might consider ending its negative interest rate policy when it sees the achievement of the 2% inflation target on the horizon, as reported by the Yomiuri newspaper on Saturday.

On the other side, following the Reserve Bank of Australia's (RBA) decision to maintain the Official Cash Rate (OCR) at 4.10% last week, the central bank has explained that this choice allows them more time to assess the impact of the recent rate hike and to evaluate the economic outlook.

RBA Governor Philip Lowe, whose term is set to conclude on September 18, highlighted in a speech that he is closely monitoring the potential for wages and profits to surpass levels that are consistent with achieving the inflation target by late 2025. Additionally, Lowe noted that the unemployment rate can remain at levels not seen in nearly 40 years, and wage growth remains robust.

Investors are expressing concerns about the weak demand and the potential for deflation in China. It is worth noting that the Chinese government has denied that the country has officially entered a period of deflation, as the technical definition typically requires three consecutive monthly declines in consumer prices.

Regarding recent economic data from China, the Consumer Price Index (CPI) data in August was released on Saturday. The report showed a year-on-year increase of 0.1%, which represented an improvement compared to the previous month's figure of -0.3%. However, this reading fell short of market expectations, which had anticipated a 0.2% increase in consumer prices. This data suggests that while there was a slight improvement, inflation remains subdued.

The renewed concerns about a Chinese economic slowdown could potentially lead to selling pressure on the Australian Dollar (AUD), often considered a proxy for the Chinese economy due to their close trade ties. This, in turn, might create headwinds for the AUD/JPY pair.

Traders of the cross pair are expected to gain a clearer insight into China's economic conditions during the week. This will include a better understanding of the obstacles that authorities face in their efforts to implement necessary monetary and fiscal policies aimed at sustaining Beijing's goal of achieving 5% GDP growth for the current year.