AUD/JPY clings to gains around 99.00 as Trump backtracks on tariff threats

• AUD/JPY catches fresh bids amid easing fears about the worsening US-China trade relations.
• Domestic political chaos, delayed BoJ rate hike bets undermine the JPY and support the cross.
• The RBA's hawkish outlook further benefits the Aussie and backs the case for additional gains.

The AUD/JPY cross opens with a bullish gap at the start of a new week and recovers a part of Friday's slump of over 250 pips to the 97.80 region. Spot prices climb back above the 99.00 mark during the Asian session and for now, seem to have stalled a sharp retracement slide from the 101.00 neighbourhood, or the highest level since November 2024, touched last Thursday.

Against the backdrop of domestic political turmoil, the risk-on impulse undermines the Japanese Yen's (JPY) safe-haven status and turns out to be a key factor acting as a tailwind for the AUD/JPY cross. Japan's Komeito party ended a 26-year partnership with the ruling Liberal Democratic Party (LDP), jeopardizing Sanae Takaichi's bid to become the country's first woman Prime Minister. This adds a layer of uncertainty and could further delay the Bank of Japan (BoJ) rate hike plan.

Meanwhile, US President Donald Trump backtracked on his threatened 100% tariffs on Chinese imports from November 1 and posted on Truth Social that the US does not wish to hurt China. Trump added further that China's economy will be fine and that both countries wish to avoid economic pain. This helps ease fears of a worsening trade conflict between the world's two largest economies and boosts the global risk sentiment, weighing on the JPY and benefiting the China-proxy Aussie.

The AUD/JPY bulls seem unaffected by Chinese data, which showed that trade surplus narrowed to CNY645.47 billion for September from the previous figure of CNY732.7 billion. Additional details revealed that China's imports advanced 7.5% YoY in the same period vs. 1.7% recorded previously, and exports rose 8.4% YoY vs. 4.8% in July. In US Dollar (USD) terms, China's Trade Surplus expanded less than expected in September.

The Australian Dollar (AUD) draws additional support from the Reserve Bank of Australia's (RBA) hawkish outlook, signaling that inflation in the September quarter may be higher than expected at the time of the August meeting. The RBA also said it required more time to gauge the full effects of a cumulative 75 basis points (bps) rate cut in 2025. This, in turn, backs the case for additional gains for the AUD/JPY cross, though bets for an imminent BoJ rate hike this year might cap the upside.