USD / JPY – Less tha Stellar Retail Growth in Japan

Japanese Dec retail trade grew 0.4% Y/Y vs expectations for a +0.3% rise. However this growth was significantly smaller than previous month of 1.2%. M/M retail sales grew 0.1%, better than Nov’s -0.1% contraction. All in all, the data does not look bad, but certainly it does not inspire confidence that Japan’s economy is recovering, as much of the unexpected gains was due to increase in fuel sales and consumption to combat colder than usual weather.

GDP of Japan shrank 3.5% (annualized) last quarter, and PM Abe has his work cut out for him as Japan aims for 2% inflation target which BOJ has said that Monetary Policy alone “will not be enough” to meet. The only saving grace is knowing that this release is based on data before the “strong” actions stimulus package announced 2 weeks ago. Meaning more pressure will be on next month’s release to show some signs of growth to justify the effectiveness of the stimulus.

USD/JPY Hourly Chart

USD/JPY is unaffected by the news release. Price recovered from the dip due to Jan US consumer confidence falling sharply, resulting in a temporary flight for safety which strengthened the Yen. Further gains in USD/JPY can be attributed to the overall “risk on” tone during Asian hours rather than due to Japanese Retail data. At the current state, USD/JPY’s rally is less impacted by actual economic fundamentals, but more so on sentiment and hope for even more BOJ actions. Traders also have one eye on the 2014 “QE Infinity – Tokyo Style” which is BOJ’s own version of monetary easing. With a hawkish FOMC in 2013, it is hard not to see higher potential for USD/JPY.

N225 Futures Hourly Chart

Japanese stocks benefited from the weakening of USD/JPY, and the incredible climb continues with a new high today above 11,000 even before USD/JPY has new significant breakthroughs. Also seemingly unaffected by today’s news, Nikkei 225 is still riding high on stimulus drugs, with bullish momentum still going strong.

With US GDP and FOMC coming up next, the only true bearish USD/JPY would be a shockingly low Q4 2012 GDP that wakes everybody up and send party-goers packing back to safe-havens once more. All other scenarios have a pro USD strength slant, which can send USD/JPY higher. This includes a highly unlikely scenario in which FOMC suddenly turn dovish, which has a pro “risk” element, weakening safe-havens like JPY.

Looks like the party is still going on – for now.

More links:
 USD/JPY -Yen Remains Under Pressure

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