Japanese yen keeps on rolling

• Japanese retail sales climb but industrial production declines
• Japanese yen rises sharply

The Japanese yen has posted sharp gains on Thursday. In the European session, USD/JPY is trading at 140.66, down 0.82%.

Japanese retail sales beat forecast

Japanese releases were a mixed bag today. Retail sales impressed with a gain of 5.3% y/y in November, following a downwardly revised 4.1% gain in October and beating the market consensus of 5.0%. Monthly, retail sales climbed 1%, rebounding from a 1.6% decline in October.

The news was not as cheery on the manufacturing front, as Industrial Production declined by 0.9% m/m in November, compared to a 1.3% gain in October. Still, this was above the market consensus of -1.6%.

The mixed data is indicative of an uneven recovery. Consumer spending is solid and the service sector is expanding, while manufacturing is mired in a slump.

There has been feverish speculation that the Bank of Japan will exit its ultra-loose policy, but the BoJ will want to see stronger growth before making any dramatic shifts, which could include lifting rates into positive territory. The markets have circled January and April has strong possibilities for a move, but I would lean towards April, as the annual wage negotiations in March will help determine if inflation is sustainable. Let’s not forget that the BoJ has caught the markets off guard in the past with changes to policy and a move at the January meeting cannot be completely discounted.

In the US, the Federal Reserve has all but declared that the rate-tightening cycle is over. Fed Chair Jerome Powell has jumped on the rate-cutting bandwagon and has signalled that the Fed expects to trim rates three times in 2024. The markets are more bullish and have priced in six rates, starting as early as March. This has led some Fed members to caution that the markets are getting ahead of themselves and that rate cuts are not necessarily imminent.

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USD/JPY Technical

• USD/JPY has pushed below support at 141.38 and is testing support at 140.78. The next support level is 140.01
• There is resistance at 142.08 and 142.61

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