Yen dips despite stronger JPY retail sales

The Japanese yen continues to lose ground. The yen suffered a third straight losing week, and the trend has continued on Monday. With USD/JPY currently trading around the 114.70 level, the 115 line is vulnerable. The pair last breached this symbolic level a month ago, but the dollar couldn’t consolidate above this level.

Japan’s retail sales overperforms

Christmas week started off on a positive note, as Japan Retail Sales for November posted a strong gain of 1.9% y/y, ahead of the consensus of 1.7% and above the 0.9% gain in October. Consumers were out in force as Covid-19 cases fell during November. Still, the Omicron variant has started to spread in Japan’s major cities, leading to fears that the government could impose health restrictions or that consumers will stay at home to avoid contracting Omicron.

Japan is set on spending its way to a stronger economy, and parliament approved a record 10.8 trillion yen budget on Friday, which includes payouts to households and businesses hit by Covid. Japan’s economy is expected to roar back in Q4, with a consensus of 6.4% growth, after a contraction of -3.6% in the third quarter.

Inflation is on the rise in Japan. In November, Core CPI rose 0.5% y/y, above the consensus of 0.4%. That might seem insignificant compared with inflation numbers in the UK and the United States, but given that inflation has been negligible for years in Japan, this is certainly a change in direction. The uptick in inflation will be welcome news at the Bank of Japan, and should ease policymakers concerns about deflation. The bank’s inflation target of 2% remains a long way off, but inflation could move higher if the Omicron does not derail economic activity.

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USD/JPY Technical

• USD/JPY is putting pressure on resistance at 114.82. Above, there is resistance at 115.26
• There is support at 113.65 and 112.90

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