• AUD/JPY attracts heavy selling following the release of soft Australian consumer inflation figures.
• Intervention fears prompt some JPY unwinding and further contribute to the steep intraday slide.
• The wide interest rate gap between Japan and Australia holds back bears from placing fresh bets.

The AUD/JPY cross extends this week's retracement slide from the 114.65 zone, or its highest level since June 3, and attracts some follow-through selling for the second straight day. The intraday decline picks up pace following the release of soft Australian consumer inflation figures and drags spot prices to an over one-week low, around the 113.60 region, in the last hour.

Data published by the Australian Bureau of Statistics (ABS) showed the Consumer Price Index (CPI) increased by 3.8% year-over-year (YoY) in June, compared to a 4% growth reported in May and consensus estimates. Adding to this, the monthly print missed forecasts and fell for the second straight month, by 0.1% in June. The softer CPI report prompted traders to unwind expectations for a near-term Reserve Bank of Australia (RBA) rate hike and weighs heavily on the Australian Dollar (AUD).

The Japanese Yen (JPY), on the other hand, draws support from growing speculations that authorities will step in to prop up the domestic currency. This turns out to be another factor that exerts downward pressure on the AUD/JPY cross and contributes to the steep intraday decline. However, the persistently wide interest rate gap between Japan and other major economies, including Australia, holds back JPY bulls from placing aggressive bets and helps limit further losses for the currency pair.

Furthermore, economic risks stemming from the Middle East crisis warrant some caution before confirming that the AUD/JPY cross has topped out in the near-term and positioning for further losses. Investors might also opt to wait for the crucial Bank of  Japan (BoJ) policy decision on Friday before placing fresh directional bets. This, in turn, suggests that any subsequent slide might still be seen as a buying opportunity and is more likely to remain limited amid mixed fundamental cues.