AUD/JPY hovers around 93.00, downside appears due to stronger Japanese Yen

• AUD/JPY may depreciate as the Japanese Yen strengthens, shrugging off weaker domestic data.
• Japan's preliminary Q1 2025 GDP showed a 0.2% quarterly contraction and a 0.7% annualized decline.
• Stronger Australian jobs data prompted markets to dial back RBA rate cut expectations for 2025 to 75 basis points.

AUD/JPY remains subdued around 93.20 during Asian trading hours on Friday, extending its losses for the third successive session. The currency cross has given up its daily gains as the Japanese Yen (JPY) appreciates despite weaker domestic data. Japan's preliminary GDP data for Q1 2025 showed a quarterly contraction of 0.2%, compared to 0.6% growth in Q4 2024. On an annualized basis, GDP fell 0.7%, missing expectations of a 0.2% decline.

Despite the weak economic print, the Japanese Yen (JPY) is supported by growing expectations that the Bank of Japan (BoJ) may raise interest rates again in 2025. Additionally, prospects for a US-Japan trade deal and recent government comments have helped prop up the Yen.

Japan's Economy Minister Ryosei Akazawa reaffirmed Japan's intent to press the US for a review of tariffs and promised liquidity aid for affected businesses. Finance Minister Shunichi Kato also emphasized plans to meet US Treasury Secretary Scott Bessent to address foreign exchange volatility, stressing that excessive FX moves could harm Japan's economy.

The Australian Dollar (AUD) may gain traction, buoyed by Thursday's stronger-than-expected labor market data, which helped temper expectations for aggressive rate cuts by the Reserve Bank of Australia (RBA).

Markets have now scaled back their rate cut expectations for the RBA to 75 basis points in total for 2025, down from over 100 basis points projected just weeks ago. Still, caution may prevail as investors brace for the upcoming RBA policy decision next week, where a 25 basis point cut to 3.85% is widely anticipated--potentially capping further AUD gains.

The risk-sensitive AUD is also drawing support from improving global trade sentiment. A preliminary agreement between the US and China aims to reduce tariffs significantly--US duties on Chinese goods will drop from 145% to 30%, while China will cut tariffs on US imports from 125% to 10%. Additionally, renewed optimism over a potential US-Iran nuclear deal has further buoyed market sentiment.