AUD/JPY inches lower to near 101.00, downside risk seems restrained due to hawkish RBA

• The AUD/JPY cross could recover as traders anticipate that the RBA may avoid implementing rate cuts in 2024.
• Japan’s polls indicate the LDP-led coalition may lose its majority in the general election this weekend.
• Australia's Judo Bank Services PMI inched up to 50.6 in October, marking its ninth consecutive month of expansion.

AUD/JPY breaks its three-day winning streak, trading around 101.20 during the European hours on Thursday. The Japanese yen (JPY) gained some traction as buyers might have responded to verbal intervention from Japanese officials earlier in the day.

However, the upside of the Japanese Yen could be limited due to growing concerns over political instability, which further clouds the outlook for the Bank of Japan's (BoJ) monetary policy. In Japan, recent polls indicate the ruling coalition led by the Liberal Democratic Party (LDP) may lose its majority in the general election this weekend.

Japan's Finance Minister, Katsunobu Kato, voiced concern over the rapid and one-sided movements in the currency market, emphasizing the importance of stable currency movements that align with economic fundamentals, per Reuters.

Additionally, on Thursday, Japan's Deputy Chief Cabinet Secretary, Kazuhiko Aoki, stated that the government is closely monitoring foreign exchange fluctuations, including speculative activities, with a sense of urgency.

The downside of the AUD/JPY cross could be limited as the Australian Dollar (AUD) receives support from the prevailing hawkish sentiment surrounding the Reserve Bank of Australia (RBA), bolstered by the positive employment data. Earlier this week, RBA Deputy Governor Andrew Hauser noted that the labor participation rate is remarkably high and emphasized that while the RBA is data-dependent, it is not data-obsessed.

On the data front, Australia's Judo Bank Composite PMI slightly rose to 49.8 in October, up from 49.6 in September, signaling a second straight month of contraction in private sector output. The Services PMI inched up to 50.6 from 50.5, marking its ninth consecutive month of expansion, while the Manufacturing PMI dipped to 46.6 from 46.7, continuing its decline.