Osaka has cited mental health as the reason behind her decision.
Williams lost the match 7-6 (4), 6-2.
"We need to be flexible," said Nadal.
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Djokovic won 7-5, 6-2,6-2 against Medvedev.
Osaka won against America's Jennifer Brady in straight sets.
Serena Williams bid the Australian Open a tearful farewell.
Players have been forced to quarantine after arriving on flights with positive Covid-19 cases.
Williams remains one grand slam title off Margaret Court's record.