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

• Australian Dollar stays strong despite China's July retail sales (+0.6%) and industrial production (+4.5%) miss growth forecasts.
• An NBS spokesperson attributed minor growth headwinds to extreme weather, emphasizing China's core development trajectory remains intact.
• Weak Japanese GDP data complicates the Bank of Japan's ability to raise interest rates and normalize monetary policy.

AUD/JPY extends its gains for the second successive day, trading around 113.20 during the European hours on Monday. The currency cross continues to demonstrate strength as the Australian Dollar (AUD) holds its ground, even after Australia’s primary trading partner, China, released weaker-than-expected economic indicators.

Data from China’s National Bureau of Statistics revealed that July Retail Sales grew by just 0.6% year-over-year, missing the forecasted 1.5% and decelerating from June's 1.0%. Additionally, Industrial Production expanded by 4.5% year-over-year, underperforming both the 5.0% consensus estimate and the prior 5.3% figure. Fixed Asset Investment also 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.

Despite these misses, an NBS spokesperson noted that extreme weather was primarily responsible for the minor growth headwinds, emphasizing that China's core development trajectory remains intact.

RBA pricing seen steady as Australia wage data unlikely to move the needle

Strategists at Brown Brothers Harriman expect this week’s Australian labour market releases to have a limited impact on policy expectations. BBH notes that the Australian Q2 wage price index due Wednesday and the July labor force survey on Thursday are “unlikely to shift the dial on RBA rate pricing,” with consensus looking for wages to “rise 0.8% q/q for a third straight quarter and dip to 3.2% y/y vs. 3.3% in Q1.”

Meanwhile, potential upside for the AUD/JPY pair remains capped due to underlying strength in the Japanese Yen (JPY) following soft preliminary second-quarter GDP figures from Japan. The Japanese 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.

BoJ hike expectations firm as markets look past weak Japan data

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.