AUD/JPY falls to near 96.00 despite improved Australian labor data

• AUD/JPY depreciates as the Japanese Yen strengthens, with Fed rate cut expectations narrowing yield spreads.
• US Treasury Secretary Scott Bessent believes that the Fed could implement a 50-basis-point rate cut in September.
• Australia's Employment Change climbed to 24.5K, while Unemployment Rate fell to 4.2% in July.

AUD/JPY halts its winning streak that began on August 5, trading around 96.20 during the Asian hours on Thursday. The currency cross weakens as the Japanese Yen (JPY) strengthens, driven by external factors, particularly the softening of Fed rate expectations, which is narrowing yield spreads.

US Treasury Secretary Scott Bessent said on Wednesday that short-term Fed interest rates should be 1.5-1.75% lower than the current benchmark rate at an effective 4.33%. Bessent added that there is a good chance that the central bank could opt for a 50 basis point rate cut in September.

The Bank of Japan (BoJ) is under pressure to drop its inflation gauge linked to domestic demand and wage growth, which has constrained further tightening. Governor Kazuo Ueda has remained cautious, stating that "underlying inflation" is still below the BoJ's 2% target.

However, the downside of the AUD/JPY cross could be limited as the Australian Dollar (AUD) gains ground following the release of domestic employment data. The improved labor market figures strengthen the cautious sentiment surrounding the Reserve Bank of Australia's (RBA) policy outlook.

Australia's Employment Change arrived at 24.5K in July from 1K in June (revised from 2K), against the consensus forecast of 25K. Meanwhile, the Unemployment Rate fell to 4.2%, as expected, from 4.3% in June. The Participation Rate remained steady at 67.0%, against the expected 67.1%. Full-Time Employment rose to 60.5K from 37.6K previous reading.

Sean Crick, ABS head of labour statistics, noted that the employment growth resulted in the employment-to-population ratio rising slightly to 64.2%. The female employment-to-population ratio and participation rate reached 60.9% and 63.5%, both new historical highs.