1. Japanese Nationwide Department Store Sales
2. U.K. CBI January Industrial Trends Survey
3. Bank of Canada Rate Decision

Japanese Department Store Sales (DEC) (YoY) (5:30 GMT, 0:30 EST)
Consensus: N/A
Previous: 3.2%

Outlook:  Japanese department store sales are expected to increase marginally on a year-adjusted basis, after surging 3.2% for the 12-months ended November.  The previous month's explosion in sales was the largest percentage gain since April of 1998, and comes on the back of three consecutive monthly increases.  A decline in energy prices during December most likely left consumers with more money in their pockets, which encourages increased spending on discretionary items such as clothing and home appliances.  Subsequently, an increase in department store sales is indicative that the Japanese consumer is more comfortable with spending their money - the kind of optimism that Japanese policymakers are banking on to underpin an economic expansion.  Contrastingly, a November report indicated that retail sales fell by 0.2%, and the unemployment rate rose to 4.6% - both of which have negative implications for the struggling economy.  However, if December's department store sales data is released higher, it may lend some support to government officials that the consumer's willingness to spend more cash is well on its way.  With the Central Bank recently raising its economic outlook for 2006, traders are eagerly awaiting an indication from the Bank of Japan that they will be raising interest rates for the first time after seven years of deflation.

Previous:  November's department store sales climbed 3.2% from a year earlier, marking the biggest percentage increase in nearly seven years.  Clothing, which comprises 39.9% of store revenue, soared 5.6% due to strong sales of year-end gifts.  Food, which is roughly 1/4th of the overall figure, also increased on the month with a 1.2% gain.  While the news was positive for overall consumer spending, Japanese policymakers are still looking for further signs that the higher volume of consumption will lead to rising rates of inflation.  The Bank of Japan has recognized that the economy is finally pulling itself out of deflationary conditions, but reiterates that they will only consider raising interest rates should core-CPI readings emerge from negative territory for two consecutive months. 

UK CBI January Industrial Trends (JAN) (11:00 GMT, 6:00 EST)
Consensus: -20.0
Previous: -22.0

Outlook:  The CBI Industrial Trends Survey is expected to show an improvement for the second consecutive month after steadily declining in 2005.  The survey is the longest-running private sector indicator of UK manufacturing trends, and is taken into heavy consideration by leaders of the central bank.  The report provides a comprehensive survey from senior executives regarding past and expected trends in outputs, exports, prices and costs.  Declines in 2005 can be attributed to a weakness in industrial production, however, several manufacturing indicators out of Europe have recently suggested that activity is finally picking up again.  UK manufacturing output increased 0.4% in November - the first increase in nearly four months - and the CIPS PMI printed at 51.1, with a reading above 50 suggesting sector expansion.  Additionally, last week's bullish retail sales data showed a 4% rise on a yearly-adjusted basis, helping to assuage any fears that the MPC would cut interest rates from 4.50% anytime soon.  Continued upside strength in the manufacturing sector may indicate that the economy is on better footing than previously thought. 

Previous:  The industrial trends survey increased for the first time in several months, with total orders for December reading a -22 from October and November's -25 dip.  Price expectations and stocks both showed marginal increases on the month, while export orders declined.  The survey is suggestive of a bottoming in recently lackluster manufacturing activity as underlying factors look to tick slightly higher in the short term.  However, with the survey still hovering record lows, the print continues to lead market participants in expecting a rate cut decision before any hike considerations will take place, applying bearish undertones to the sterling.  Further expansion in the manufacturing sector would most likely put these expectations to rest, as an increase in production results in rising profits for corporations, stronger employment, and higher wages - all signs of a healthy economy. 

Bank of Canada Rate (14:00 GMT, 9:00 EST)
Consensus: 3.50%
Previous: 3.25%

Outlook:  After an exhaustive week of economic releases, the Bank of Canada has much to go by in making its interest rate decision tomorrow morning.  The commodity driven economy has taken advantage of the rising prices of crude oil reaching close to August's high of $70 and gold creeping up to $560.  CPI has increased across the board, showing a monthly increase of 0.1 percent in December to -0.1 percent while annually CPI improved from 2 percent to 2.2 percent.  Unemployment has additionally dropped 1.5 percent from the beginning of 2005 to 6.5 in December fueling consumer consumption, still reflective of a tight labor market.  Meanwhile, businesses are finding difficulties meeting additional demand risking operating close to full capacity, implying that Canada's economy is at risk of inflation as a result of bottleneck production.  Further adding to inflationary pressures includes today's retail sales report jumping to 1.1 percent in November from 0.6 percent, which will surely impact the upcoming decision.  

Previous: In December, the Bank of Canada made its third interest rate hike to 3.25 percent.  Closing in on the October 2001 interest rate high of 3.50 percent, the Bank of Canada has continued to recognize economic expansion from rising commodity prices, improving job opportunities along with increased consumer spending, leading to potential signs of inflation.  In addition to positive growth in retail sales, Canada's international transactions improved more than C$1 billion to C$5.4 billion from C$3.8 billion in October, indicating that foreign demand for Canadian assets continues to rise.  However, when inflation and manufacturing shipments fell in November, the number of further interest hikes anticipated has since waned slightly.  Nonetheless, expectations remain for the Bank of Canada to continue its preemptive attempts of inflationary curbing as a tight labor market and feverish production bolsters price increases at the consumer level.

Richard Lee is a Currency Strategist at FXCM.