AUD/JPY inches lower to near 100, upside potential remains supported by hawkish RBA

• AUD/JPY may regain its ground as the RBA is widely expected to maintain a hawkish policy outlook.
• China's Caixin Manufacturing PMI increased to 50.3 in October, from September's 49.3.
• The au Jibun Bank Japan Manufacturing PMI declined to 49.2 in October, from 49.7 in September.

The AUD/JPY pair remains subdued for the second day, hovering around 100.00 during the European session after the release of mixed Q3 Producer Price Index (PPI) data on Friday. Despite this, expectations for a hawkish approach from the Reserve Bank of Australia (RBA) could have supported the Australian Dollar, helping limit losses in the AUD/JPY cross.

Australia's Producer Price Index rose 0.9% quarter-on-quarter in Q3, following a 1.0% increase in the previous period and surpassing forecasts of a 0.7% rise, marking the 17th consecutive period of producer inflation. On an annual basis, PPI growth slowed to 3.9% in Q3, down from a 4.8% increase in the prior quarter.

China's Caixin Manufacturing Purchasing Managers Index (PMI) rose to 50.3 in October, up from 49.3 in September, exceeding market expectations of 49.7. Given China's role as a major trading partner for Australia, economic shifts in China could have a substantial impact on Australian markets.

In Japan, the headline au Jibun Bank Japan Manufacturing PMI stood at 49.2 in October, indicating a decline from 49.7 in September. This composite single-figure indicator shows that Japanese manufacturing production continued to decline at the beginning of the fourth quarter of 2024, with both output and new order inflows decreasing at more pronounced rates.

On Thursday, the Japanese Yen (JPY) strengthened following comments from Bank of Japan (BoJ) Governor Kazuo Ueda, which were interpreted as raising the likelihood of a rate hike in December. The central bank intends to continue adjusting policy rates as long as economic conditions and inflation align with its forecasts. The BoJ's policy remains focused on sustainably and stably achieving its 2% inflation target.

Japan's Chief Cabinet Secretary Yoshimasa Hayashi stated on Friday that he expects the Bank of Japan to work closely with the government to implement effective monetary policy, targeting stable and sustainable achievement of its price goals.