Japanese yen dips, inflation rises

US and Japanese markets are open on Tuesday, but trading remains thin after the Christmas holiday. There are some key Japanese events on the calendar, although US releases are all tier-2 events. In the North American session, USD/JPY is trading at 133.41, up 0.44%.

Retail Sales slower in November

There are a host of events out of Japan today. Retail sales rose for a ninth consecutive month in November, buoyed by the tourist trade after Japan opened its borders. Still, the gain of 2.6% y/y was well off the 4.4% gain in October and 4.8% in September, and below the consensus of 3.7%. Household and consumer consumption account for more than half of economic growth, so the downtrend is clearly worrying. Japan’s economy contracted in Q3, as a poor global outlook, the slowdown in China and a weak yen put a squeeze on economic growth.

Inflation continues to rise in Japan, although the levels pale in comparison to what the US, the UK and the eurozone are experiencing. The Bank of Japan’s preferred inflation gauge, BOJ Core PCI, accelerated for a ninth straight month in November, rising to 2.9% y/y, up from 2.8% and above the consensus of 2.7%. Last week, Japan’s Core CPI rose 3.7% y/y in November, its highest level since 1981. Inflation is moving higher as firms continue to pass along higher costs to consumers, unable to absorb the rise in energy, food and raw materials. The rise in inflation hasn’t budged the BoJ, with Governor Kuroda saying that inflation would fall back below the 2% target in 2023.

Kuroda stated on Monday that the widening of the yield curve band was not a prelude to an exit from the Bank’s ultra-loose policy. We’ll get more details of that dramatic move later today, with the release of the BoJ Summary of Opinions from last week’s policy meeting. The report should make for some interesting reading.

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USD/JPY Technical

•  133.62 is a weak resistance line. Above, there is resistance at 134.12
• There is support at 132.80 and 131.83

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