AUD/JPY remains tepid around 97.00 due to rising odds of RBA reducing rates sooner

• AUD/JPY extends its losses as the AUD remains under pressure due to renewed concerns about China's economy.
• National Australia Bank maintains its forecast for the first RBA rate cut at the May 2025 meeting.
• The Japanese Yen struggles as the BoJ is widely expected to keep interest rates steady on Thursday.

AUD/JPY loses ground for the second consecutive session, trading around 97.00 during the European hours on Wednesday. The AUD/JPY cross extends its losses as the Australian Dollar (AUD) faces challenges due to the increased likelihood that the Reserve Bank of Australia (RBA) will cut interest rates sooner and more significantly than initially expected.

On Wednesday, the National Australia Bank (NAB) maintained its forecast for the first RBA rate cut at the May 2025 meeting, though they acknowledge February as a possibility.

The Aussie Dollar remains under pressure due to renewed concerns about China's economy, Australia’s key trading partner, following weak economic data. Chinese Retail Sales missed expectations in November, adding strain on policymakers after President Xi Jinping indicated a desire to boost household consumption last week.

However, the downside of the AUD/JPY cross could be restrained as the Japanese Yen (JPY) struggles as traders seem to be convinced that the Bank of Japan (BoJ) will keep interest rates steady on Thursday.

Japan's Ministry of Finance announced on Wednesday an unexpected improvement in the trade deficit for November, which narrowed to ¥117.6 billion from October's ¥462.1 billion. This improvement was primarily attributed to robust export growth, which rose by 3.8% year-on-year in November, while imports fell by 3.8%.

Japan's trade data pointed to weak domestic demand amid an uncertain economic outlook and concerns about US President-elect Donald Trump's tariff plans are contributors to refraining the Bank of Japan from hiking interest rates.