AUD/JPY drops back towards 8-week lows ahead of BOJ

• On its way to 86.50?
• Aussie weighted by downbeat China PMIs
• BOJ in focus

The AUD/JPY pair extends its selling spiral into a sixth day on Tuesday, mainly driven by persisting risk-off trades, which keeps the AUD bulls at bay.

AUD/JPY: Downside playing out ahead of BOJ

The cross failed once again to hold above the 87 handle, as risk-aversion extended into Asia, reflected by weaker Asian equities and Treasury yields, with sentiment soured on renewed concerns over the US-Russia probe and US tax reforms. The benchmark 10-year Treasury yields fell below the key 2.40 levels, knocking-off US dollar lower across the board.

However, the AUD/USD pair failed to benefit from the USD weakness, as downbeat Chinese manufacturing and services PMI reports combined with awful Aus new home sales data weigh down on the spot.

Meanwhile, the safe-haven Yen remains broadly underpinned amid risk-averse market condition and also on slightly upbeat Japan’s industrial output data. Japan's industrial output fell less than expected in September.

All eyes now remain on the BOJ monetary policy decision for fresh impetus on the pair ahead of the US data flow due later in the NA session.

AUD/JPY Levels to consider                                                                                

Higher Side: 87.29 (5-DMA), 87.76 (100-DMA), 87.95 (20-DMA)

Lower side: 86.55 (Sept 6 low), 86.00 (round figure), 85.86 (200-DMA)