AUD/JPY: Yen Resumes Fall As Japanese Government Plans Fresh Stimulus

The Japanese yen is foreseen to weaken opposite the Australian dollar today as the freshly-elected Japanese government is expected to announce a fresh stimulus package as part of its efforts to boost growth in the sluggish economy. Meanwhile, despite an unexpected dip in Retail Sales, upbeat housing data from Australia is believed to support the aussie.

Japanese media reported yesterday that the Japanese government will announce around 12 trillion yen in fiscal stimulus measures aimed to boost activity in the world’s third largest economy. The package is expected to stress the need to overcome deflation through hefty investments in public works, while emphasizing the need for more aggressive monetary policy, reflecting previous pronouncements by Prime Minister Shinzo Abe.

Both the Yomiuri newspaper and Kyodo News reported the figure as extra spending in the fiscal year through March, with the Yomiuri saying 5-6 trillion yen will be directed to public works projects. The stimulus package is expected to be finalized on Friday, while the supplementary budget is slated to be endorsed by the Cabinet on January 15.

Shinzo Abe said that the stimulus package will be the first step in his economic revitalization program aimed to steer Japan out of deflation and prop up the economy. According to analysts, the scale of the budget suggests that Abe’s administration is serious about stimulating the economy, echoing his pledge during the campaign trail. Gross Domestic Product shrank at an annualized 3.5 percent rate in the third quarter of 2012 after contracting in Q2, effectively putting Japan in recession. Economists peg that the Japanese economy contracted by another 0.5 percent in the fourth quarter.

Over to the Land Down Under, retail sales dipped for the first time in four months in November as consumers spent less on household goods and clothing. Spending fell 0.1 percent from a month earlier, suggesting that the weaker labor market outlook has incited Australians to exercise caution.

Nevertheless, the Australian dollar is seen to be buoyed by a report by the Housing Industry Association which showed that the number of new homes sold rose for a second consecutive month in November. New home sales inclined 4.7 percent during the month to follow the 3.4 percent gain registered in October. Considering these, a long position is viable for the AUD/JPY trades today.