AUD/JPY edges higher to 100.75-80 area, upside potential seems limited

• AUD/JPY trades with a mild positive bias on Friday, albeit it lacks follow-through buying.
• A positive risk tone undermines the safe-haven JPY and benefits the risk-sensitive Aussie.
• China’s economic woes and BoJ rate hike bets should keep a lid on any meaningful upside.

The AUD/JPY pair attracts some buyers during the Asian session on Friday and looks to build on the previous day's goodish rebound from the 99.20 area, or its lowest level since April 22. Spot prices currently trade around the 100.75 area, up just over 0.10% for the day, and for now, seem to have snapped a five-day losing streak, though any meaningful appreciating move still seems elusive. 

The better-than-expected US macro data released on Thursday pointed to a still resilient economy and infused some stability in the financial markets. This is evident from a generally positive tone around the equity markets, which undermines demand for the traditional safe-haven Japanese Yen (JPY) and benefits the perceived riskier Australian Dollar (AUD). That said, hawkish Bank of Japan (BoJ) expectations hold back traders from placing aggressive bearish bets around the JPY and act as a headwind for the AUD/JPY pair. 

Investors now seem convinced that the Japanese central bank could hike interest rates again at its upcoming policy meeting next week. The bets were reaffirmed by data indicating that core inflation in Tokyo – Japan's national capital – continued its upward trend for the third consecutive month in July following a fall to the 1.6% YoY rate in April. In fact, government data showed this Friday that Tokyo Core CPI, which excludes volatile fresh food prices, edged up to 2.2% YoY during the reported month from 2.1% previous. 

This, to a larger extent, overshadows the fact that the headline Tokyo CPI ticked lower down to the 2.2% YoY rate from 2.3% and the core-core CPI (excluding food and energy) fell from 1.8% to the 1.5% YoY rate in July. Meanwhile, persistent worries about a slowdown in China – the world's second-largest economy – might continue to undermine the China-proxy Aussie. This, in turn, further warrants some caution before confirming that the AUD/JPY cross has formed a near-term bottom and positioning for any meaningful appreciation.