USD/JPY: Yen To Dip On Weak Japanese Retail Sales

The Japanese yen is foreseen to continue dwindling opposite the US dollar today on further signs of strain in the world’s third largest economy. Retail sales in Japan increased less than forecast in December, suggesting consumer demand remains weak. Meanwhile, optimism for the US economy is foreseen to support the Greenback after strong house price gains indicate that the housing recovery is in full steam.

Earlier today, the Japanese Trade Ministry reported that sales inclined by 0.1 percent from November, falling way short of the 0.4 percent estimated by economists. On a yearly basis, retail sales rose 0.4 percent in December, much slower than the 1.2 percent jump recorded in the previous month. Continuing uncertainty over economic prospects and a deflationary environment which tends to spur individuals to defer purchases likely contributed to the soft reading. Weak consumer demand and a seventh monthly decline in exports in December underscore the challenges facing Prime Minister Shinzo Abe as he tries to combat deflation and lead the nation out of recession.

In his first speech to parliament since taking office last Monday, Shinzo Abe prodded the Bank of Japan to achieve its inflation target as soon as possible as he pledged to overcome what he called an economic crisis. Giving in to intense pressure, the BOJ last week doubled its inflation target to 2 percent, made an open-ended commitment to purchase assets, and issued a joint statement with the government committing itself to its new goals. With the bleak economic figures foreseen to pile additional pressure on the central bank to take on more aggressive measures, the yen is believed to lose further ground.

In the US, economic conditions are seemingly looking brighter each month, with the long-depressed housing market showing marked improvements. A report yesterday showed home prices in 20 cities rose by the most in more than six years in the 12 months to November, suggesting that the real estate sector will play a more central role in economic growth this year. The S&P/Case-Shiller HPI jumped 5.5 percent from November 2011, the largest year-on-year gain since August 2006. With contrasting economic trends in both countries, a long position favoring the dollar is recommended today.