• The AUD/JPY currently stands at 97.25, showing a 0.25% decrease in Tuesday's trading session.
• Japan's manufacturing activity remains weak with decreasing machine tool orders.
• RBA and BoJ's policy divergence may eventually make the cross recover.

On Tuesday's session, the AUD/JPY suffered modest losses, observed trading at around 97.25. The pair is positioned on turbulent waters as Australia's economic view is fogged with uncertainty while Japan battles with weak manufacturing activity. That being said, the divergent Reserve Bank of Australia (RBA) and Bank of Japan (BoJ) policies may limit the downside for the pair.

The Australian economy depicts an ambiguous outlook. On a positive note, Westpac's Consumer Sentiment index for February reached a 21-month high of 86.0, pointing towards buoyed consumer optimism. However, the National Australia Bank's (NAB) business survey showed a dip to a two-year low of 6 in January, signaling a softer economic environment. In addition, elevated inflation risk levels persist, with RBA's Head of Economic Analysis Kohler remarking that while inflation is decreasing, it will take time to hit the RBA's 2%-3% target range and as for now the market predicts an 85% likelihood of Australia's first interest rate cut as late as in August, adjusted from June at the beginning of the month.

Turning to Japan, January's machine tool orders saw little improvement, falling 14.1% YoY, from -9.6% in December, reflecting a weak manufacturing activity. Notably, domestic orders dropped 29.1% YoY while foreign orders fell only 6.2% YoY, highlighting internal economic concerns. In addition, January PPI remaining steady at 0.2% YoY, signals a minimal pipeline price pressure. Regarding the Bank of Japan's policy, normalization looks set to occur after the spring wage negotiations if there is a confirmed pick-up in wage growth. In the meantime, markets anticipate a June liftoff, keeping a close eye on the economic revival which would demand a sooner liftoff