US retail sales shine, Dollar-Yen jumps, Japan inflation expected to ease

The Japanese yen continues to have a busy week, with strong movement in both directions. In the North American session, USD/JPY is trading at 148.53, up 0.45% on the day. On Wednesday, USD/JPY strengthened to 149.18, its highest level since March.

US retail sales surprise with 0.6% gain

US retail sales have been in the doldrums of late, posting declines in April and May as consumers reacted with a thumbs-down to President Trump's tariffs, which took effect in April and made imported goods more expensive.

The markets had anticipated a marginal gain of just 0.1% m/m in June but retail sales came in at an impressive 0.6%, bouncing back from -0.9% in May. Most sub-categories recording stronger activity in June.

The US tariffs appear to have had a significant impact on retail sales, as consumers continue to time their purchases to minimize the effect of tariffs.

Consumers increased spending ahead of the tariffs and cut back once the tariffs went into effect. With a truce in place between the US and China which has slashed tariff rates, consumers opened their wallets and purchased more on big-ticket items such as motor vehicles, which jumped 1.2% in June.

With Trump threatening new rounds of tariffs against allies such as Canada and Japan on August 1 if no agreements are reached, it will be interesting to see if consumer spending reverses direction next month.

Japan's inflation rate expected to ease

This week, the US and UK posted higher inflation numbers for June, but Japan is not expected to follow suit. Headline inflation is projected to drop to 3.3% y/y from 3.7% in May and core CPI, which is closely watched by the Bank of Japan, is expected to drop to 3.3% from 3.5%. If inflation is higher than expected, it will raise expectations for a rate hike from the BoJ in the fourth quarter.

• There is resistance at 148.00 and 149.08
• 146.80 and 145.72 are providing suppport