AUD/JPY softens to below 92.50 on risk-off sentiment

• AUD/JPY loses traction to near 92.30 in Tuesday's Asian session, down 0.18% on the day. 
• Japan's GDP expanded an annualised 2.2% in Q4, slower than the 2.8% growth in the initial estimate. 
• Tariff threats and China's deflationary pressure undermine the China-proxy Aussie.

The AUD/JPY trades in negative territory to around cross 92.30 during the Asian trading hours on Tuesday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) due to the prevalent risk-off environment. 

Data released by the Cabinet Office on Tuesday showed that the Japanese economy grew by 0.6% QoQ in the fourth quarter (Q4) of 2024. This figure came in lower than the preliminary reading of 0.7%. On an annual basis, the Japan's Gross Domestic Product (GDP) expanded 2.2% in Q4 versus the initial estimate of 2.8%. The data reaffirms market bets that the Bank of Japan will keep the policy rate steady at its next policy meeting on March 18-19. 

Analysts expect that the Bank of Japan (BoJ) will raise further interest rates as soon as May amid concerns about broadening inflation in Japan and hopes that bumper wage hikes seen last year will continue this year. This, in turn, might underpin the JPY and act as a headwind for AUD/JPY. 

On the other hand, the Aussie faces some challenges amid escalating global trade tensions and deflationary pressure in China, which might cap the upside for the pair. China's CPI in February missed expectations and fell at the sharpest pace since January 2024. The CPI fell 0.7% in February from a year earlier, reversing January's 0.5% increase, data from the National Bureau of Statistics (NBS) showed on Sunday.