Australian Dollar loses ground against Japanese Yen on stronger Japan GDP data
- AUD/JPY weakens to near 113.45 in Tuesday’s early European session.
- Japan’s GDP grew 0.5% QoQ in Q1 2026, stronger than expected.
- Eight of nine members backed a May hike as inflation expectations risk grew, RBA Minutes showed.
The AUD/JPY cross attracts some sellers to around 113.45 during the early European session on Tuesday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) following Japan’s upbeat Gross Domestic Product (GDP) report. The Australian jobs data will be in the spotlight later on Thursday.
The preliminary report published by the Cabinet Office showed on Tuesday that the Japanese economy grew 0.5% QoQ in the first quarter (Q1) of 2026, compared to a 0.3% growth seen in Q4 of 2025. This figure came in stronger than the expectation of a 0.4% expansion.
Meanwhile, Japan’s economy expanded at an annualized 2.1% in Q1, versus 1.3% growth prior, surpassing analysts’ expectations, on the back of improved consumption and strong exports. The stronger-than-expected data could underpin the JPY and act as a headwind for the cross in the near term.
On Monday, Reuters reported that Tokyo was likely to issue fresh debt for an extra budget so as to cushion the economic impact from the Middle East war, as the country subsidizes energy bills.
The Reserve Bank of Australia (RBA) minutes showed eight of nine board members backed the May rate hike to 4.35%, citing rising inflation risks from the Gulf conflict. One member preferred to await further data. Markets are now pricing an August hike at around 75%, with the Official Cash Rate (OCR) seen peaking at 4.60% and some chance of reaching 4.85%.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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