Australian Dollar gains against Japanese Yen despite weak economic data from China

The Australian Dollar (AUD) strengthened against the Japanese Yen (JPY) for two days straight, reaching around 113.20 during European trading hours on Monday. Despite China's recent release of weaker-than-expected economic data, the AUD/JPY currency pair maintained its upward momentum. China's National Bureau of Statistics reported that July retail sales grew by 0.6% year-over-year, falling short of the 1.5% forecast and down from June's 1.0% figure.

Industrial production expanded by 4.5% year-over-year, missing both the 5.0% consensus estimate and the prior 5.3% increase. Furthermore, fixed asset investment contracted by 6.7% year-to-date, surpassing the 5.7% decline in June and not meeting the projected 6.2% decrease. China's National Bureau of Statistics clarified that adverse weather conditions were primarily responsible for the minor growth hindrances, stating that China's core development trajectory remains robust.

Analysts from Brown Brothers Harriman anticipate that this week's Australian labor market releases will have minimal influence on policy expectations. The Australian Q2 wage price index, expected on Wednesday, and the July labor force survey, due on Thursday, are unlikely to alter the stance of the Reserve Bank of Australia (RBA) rate pricing.

Consensus forecasts predict that wages will rise by 0.8% quarter-over-quarter for the third consecutive quarter and decelerate to 3.2% year-over-year, compared to 3.3% in Q1. On the other hand, the Japanese Yen (JPY) showed underlying strength following subpar preliminary second-quarter GDP figures from Japan. Japan's economy expanded by 0.3% quarter-over-quarter in Q2 2026, down from the 0.5% growth in Q1 and below market expectations of 0.5%.

An annualized basis, Japan's GDP expanded by 1.1%, lagging the projected 2.0% and the previous quarter's 1.8% figure. This sharper-than-anticipated economic slowdown complicates the Bank of Japan's (BoJ) trajectory towards policy normalization, as the central bank depends on robust domestic demand to justify additional interest rate hikes following its departure from ultra-loose monetary policy.

MUFG analysts note that market participants seem to disregard the softer Japan data, focusing instead on policy signals from Tokyo. They highlight that investors have paid attention to reports from the end of the previous week indicating that the BoJ is set to initiate earlier rate hikes, supported by Prime Minister Fumio Kishida and the government, which reinforces the belief that further tightening remains on the table despite the recent growth disappointment.