The Australian Dollar (AUD) has continued to demonstrate resilience against the Japanese Yen (JPY), trading around 113.20 during European hours on Monday, despite weaker-than-expected economic data from China, Australia's primary trading partner. China's July Retail Sales grew by just 0.6% year-over-year, missing the forecasted 1.5%, while Industrial Production expanded by 4.5% year-over-year, below the 5.0% consensus estimate. Fixed Asset Investment contracted by 6.7% year-to-date year-over-year, deepening from June's 5.7% decline and missing expectations of a 6.2% decrease. An NBS spokesperson attributed these misses to extreme weather, emphasizing that China's core development trajectory remains intact [4].
Strategists at Brown Brothers Harriman (BBH) and Elias Haddad argue that upcoming Australian wage and labor data are unlikely to shift Reserve Bank of Australia (RBA) pricing. The Q2 wage price index, due Wednesday, is expected to rise 0.8% quarter-on-quarter for a third straight quarter and dip to 3.2% year-on-year versus 3.3% in Q1. The economy is forecast to add +12k jobs versus +76.3k in June, with the unemployment rate seen unchanged at 4.4% for a third straight month. RBA cash rate futures imply 60% odds of one final 25bps hike by year end to 4.60%. BBH sees risks skewed toward a longer pause given already restrictive policy, but notes Australia’s attractive carry and commodity exposure as ongoing AUD tailwinds [5][4].
Despite the weak data from China, the AUD/JPY pair's upside remains capped due to underlying strength in the Japanese Yen following soft preliminary second-quarter GDP figures from Japan. Japan's economy grew 0.3% quarter-over-quarter in Q2 2026, slowing from the 0.5% expansion recorded in Q1 and missing market forecasts of 0.5%. On an annualized basis, Japan’s GDP expanded by 1.1%, trailing the anticipated 2.0% and the previous quarter’s 1.8% rate. This sharper-than-expected economic deceleration complicates the Bank of Japan’s path toward policy normalization, as the central bank relies on robust domestic demand to justify additional interest rate hikes following its exit from ultra-loose monetary policy [4].
Analysts at MUFG note that market participants appear to be looking through the softer Japan data and are instead concentrating on policy signals from Tokyo. They highlight that investors have "focused on the reports at the end of last week that indicated the BoJ is set to push ahead with sooner rate hikes with the support of PM Takaichi and the government," reinforcing expectations that further tightening remains on the table despite the recent growth disappointment [4].
CONCLUSION
The Australian Dollar remains supported by steady wage and labor data, attractive carry, and commodity exposure, even as RBA pause risks grow. Despite weak economic indicators from China and capped upside due to Yen strength, market participants expect limited impact on RBA policy expectations. The outlook for AUD is underpinned by strategic factors, while Japanese policy signals continue to influence JPY movements.