AUD/JPY sticks to gains near 107.00 on strong Aussie CPI prints; lacks follow-through

• AUD/JPY gains positive traction for the second straight day amid a combination of supporting factors.

• Stronger-than-expected Australian inflation data reaffirms RBA rate hike bets and underpins the AUD.

• Fiscal concerns, political uncertainty, and a positive risk tone weigh on JPY, further supporting the cross.

The AUD/JPY cross builds on the overnight bounce from the vicinity of the 106.00 mark, or a nearly one-week low, and attracts buyers for the second day on Wednesday. Spot prices stick to modest intraday gains around the 107.00 round figure following the release of the latest consumer inflation figures from Australia, though the uptick lacks bullish conviction.

Data published by the Australian Bureau of Statistics (ABS) showed that the headline Consumer Price Index (CPI) rose 3.6% YoY in December from 3.4% prior, while the annual Trimmed Mean CPI for December climbed 3.3% vs. 3.2% in November. Adding to this, the quarterly CPI prints came in above expectations, reaffirming bets for an interest rate hike by the Reserve Bank of Australia (RBA) in February and boosting the Aussie.

The Japanese Yen (JPY), on the other hand, is pressured by concerns about Japan's fiscal health on the back of Prime Minister Sanae Takaichi's aggressive spending and tax cut plans. Moreover, domestic political uncertainty ahead of a snap election on February 8 and the prevailing bullish sentiment further undermine the safe-haven JPY, which fails to gain any respite from the Bank of Japan's (BoJ) hawkish outlook.

In fact, the BoJ’s December meeting minutes showed that policymakers are becoming more confident that Japan is sustaining a moderate wage–price cycle, and using that assessment to justify another step toward less accommodative policy. This, along with speculations that Japanese authorities would step in to stem further weakness in the domestic currency, could limit JPY losses and keep a lid on the AUD/JPY cross.