AUD/JPY Extends Advance as Softer Japan GDP Undermines Yen

Key Moments

Fundamental Drivers: Weaker Japan Growth and Event Risk Ahead

AUD/JPY traded firmly in positive territory around 113.00 during Monday’s early European session, with the Australian Dollar gaining ground against a softer Japanese Yen. The move followed a downside surprise in Japan’s latest Gross Domestic Product data, which weighed on the Yen and helped support the cross.

According to the Cabinet Office, Japan’s GDP for the second quarter expanded at an annualized 1.1%. This outcome was below the market consensus of 2.0% and weaker than the first quarter’s 1.8% growth rate. On a quarterly basis, the economy recorded 0.5% growth in Q1 and missed expectations for a 0.5% expansion in the latest release.

“The details were a mixed bag,” Capital Economics analysts wrote in a research note. “GDP expanded at a decent pace in Q2, and with the government still limiting the pass-through from higher energy prices,” they wrote, while a jump in government consumption “suggests that Takaichi’s expansionary fiscal policies are starting to have an impact.”

Market participants are now turning their attention to upcoming data releases from both Australia and Japan. Traders are awaiting the Australian July employment report on Thursday, followed by Japan’s National Consumer Price Index inflation data. Economists expect Australia’s Unemployment Rate to rise to 4.5% in July from 4.4% in June. A stronger-than-anticipated Australian labor market print could provide further support to the Aussie against the Yen.

Deutsche Bank Outlook on Japan: Growth and Inflation in Focus

Economists at Deutsche Bank highlighted that this is a data-heavy week for Japan, with “key economic data” scheduled, including Q2 GDP on Monday and the national CPI on Friday. For GDP, the bank noted that its Chief Japan Economist expects “real GDP to grow at +1.6% QoQ,” while for inflation he “forecasts core CPI ex. fresh food to rise to 1.8% YoY from 1.6% in June and core-core inflation ex. fresh food and energy to increase to 1.8% (1.7%).” The bank advised clients to “see more in his full week-ahead” for additional information.

Technical Picture: Bullish Bias Intact Above Key Averages

On the daily chart, AUD/JPY retains a constructive bullish stance as it trades above the middle line of the Bollinger Bands and the 100-day simple moving average. The concentration of these technical supports just below the current price zone indicates that pullbacks are being absorbed, while the 14-day Relative Strength Index hovering around 54 reflects a mildly positive momentum profile without signaling overbought conditions.

On the downside, initial support is located at the July 8 low of 112.21, followed by the August 10 low at 111.63. If selling pressure intensifies, the lower Bollinger Band near 110.00 comes into view as a deeper bearish objective.

On the topside, the first resistance to monitor is the July 16 high at 113.88, with the July 27 peak at 114.67 as the next hurdle. A decisive break above these levels would expose the upper Bollinger Band at 115.35 as a potential subsequent target.