Bank of Japan Rate Decision (-- GMT; -- EST)
Consensus:         0.25%
Previous:             0.25%

Outlook: All eyes will turn to tomorrow’s Bank of Japan rate decision, as speculation has run rampant on the future of domestic borrowing costs. Despite earlier speculation that that the BoJ would raise rates through its current meeting, markets have significantly shifted expectations and analysts have widely called for unchanged rates through December. Bloomberg News reports that their survey shows 39 of 52 (75 percent) of experts polled predict no change in the meeting. Of course, the fact that a relatively large minority forecasts a 25bp hike highlights the contentious nature of these estimates.

Regardless of the outcome of the interest rate decision, markets will pay very close attention to subsequent commentary by central bank officials. This will be of great significance to currency markets, as exceedingly low lending rates and domestic bond yields have left the Yen considerably weaker against major counterparts. One would be hard pressed to find economists or strategists that would claim that the Yen is fairly valued against other currencies. Yet the JPY refuses to gain ground, with unfavorable interest rate spreads that make it an unattractive long term play for speculative investors.

As such, we could see considerable volatility following the announcement, with overnight implied volatilities at an impressive 9.5 percent. The Bank of Japan would likely have to make it clear that they intend to tighten policy through the medium term for the currency to make a true turn for the better. In the meantime, we could see a short-term Yen retrace if officials highlight risks (although small) to price stability through the medium term and suggest that tightening may follow.

Canadian Consumer Price Index (YoY) (NOV) (12:00 GMT; 07:00 EST)
                       (Headline)             (Core)
Consensus:         1.5%                  2.1%
Previous:             0.9%                  2.3%

Outlook: Inflation at the consumer level is expected to pick up in Canada for the November read.  Price pressures are expected to rise 0.3 percent from a month before and gain its footing for a 1.5 percent annual pace.  The number of indicators contributing to predictions for this release is limited.  Consumer demand may have been key in allowing local firms to raise their prices.  Over the same month, Canadians’ confidence was boosted by a third monthly increase in jobs to the tune of 22,400 new hires.  Another contribution to inflation could have come through housing costs.  New starts in November advanced for the second consecutive month to 224,900 units.  On the other hand, other sources of price growth are limited.  Energy prices starting with unrefined crude all the way down to gasoline were stabilizing last month after significant contractions since August.  What’s more, the slump in manufacturing sector likely spurred price cuts in an effort to stimulate demand through the supply chain.  While inflation is almost on the table for considering another rate hike in the coming months, its importance could become more relevant to the functioning of the whole economy.  Third quarter reports showed labor productivity contracted for the second consecutive period (for the first time since 1995) while capacity utilization stepped down to a three year low 84.2 percent.  If these statistics continue to worsen, strong labor trends could evaporate and output begin to trail off in the months ahead.

Previous: Canadian price growth rebounded modestly in October as sharp declines in the transport complex moderated while price gains in the housing sector picked up.  From the breakdown of headline inflation, transportation costs slipped 1.0 percent, a controlled decline compared to the 4.4 percent slump the month before.  Contributions were also made by the clothing and recreation groups which fell 0.8 percent and 0.6 percent respectively.  The most closely watched group in this slump however came directly from the energy sector, which fell an additional 3.8 percent after September’s 9.1 percent drop.  During the month, consumers felt the relief in a 4.0 percent contraction in gasoline and 11.4 percent drop in natural gas prices.  However, not all of the pricing groups in the index were moving lower.  Mortgage rates from a year before were 4 percent higher, while housing costs were up 8.8 percent.  In fact, the Bank of Canada’s measurement of core inflation accelerated to a three-and-a-half year high 2.3 percent, leaving the potential for a rate cut some ways off.

US Producer Price Index (YoY) (NOV) (13:30 GMT; 08:30 EST)
                       (Headline)             (Core)
Consensus:          0.2%                 0.9%
Previous:             -0.9%                 0.6%

Outlook: The prices that US Producers receive at all levels of production look to continue lower in November, as a moderation of commodity prices and slowing demand put a damper on net inflation. Though the headline yearly rate will likely bounce off of previous 5-year lows, a clear overall downtrend has fostered a more sanguine outlook on domestic price pressures—reducing speculation of continued hawkishness on the part of US Federal Open Market Committee officials. Fed-watchers place considerably less weight on the Producer-linked measure as they do the Consumer Price Index, but any negative surprises could only reduce inflationary risks and increase the likelihood of lower interest rates through the medium term.

Previous: The US Producer Price Index matched previous 5-year lows, as a contraction in energy and automobile costs led the headline year-on-year rate at -1.6 percent. Excluding volatile food and energy costs, the index rose by a modest 0.6 percent in the preceding 12 months—its lowest since March, 2004. Such a soft inflation figure led many to speculate that the US Federal Reserve was likely to cut overnight lending rates through the medium term, but recently strong retail sales data suggests that solid demand may sustain inflationary pressures through coming months. Markets will likely ignore numbers at consensus for tomorrow’s release, with only a truly surprising result to elicit the same reaction we saw from recently soft consumer price inflation figures.

US Housing Starts (NOV) (13:30 GMT; 08:30 EST)
                          (Starts)                 (Permits)
Consensus:         1.540M                  1.540M
Previous:             1.486M                  1.553M

Outlook: Housing starts are expected to accelerate to a 1.54 million unit annual pace in November as a timid rebound in confidence was generated through lower mortgage rates, dealer incentives and the first steps towards more competitive housing prices.  Confidence in the housing market has been net pessimistic May, according to the National Association of Home Builders’ index.  However, from the 15-year low, 30 print marked in September, the indicator had made back-to-back improvements.  The rebound in confidence may have revitalized demand and encouraged developers to break ground on a greater number of units.  Specifically important with the bounce back in the NAHB’s report was the four-month high in the buyer traffic component.  To promote new home sales while sales have floundered through much of the year, developers have used special incentives like granite counter tops to lure potential buyers into the falling market.  More recently, cheaper costs have joined the mix to convert potential buyers to new home owners.  The most common fixed-rate mortgage finally fell below 6 percent in recent weeks while new home prices marked their biggest monthly decline in over 30 years in the most recent existing homes sale release.  With the FOMC heightening its concern over the housing slump, this first of the government’s releases could dictate expectations for growth in the final quarter.

Previous: Construction on US residences sank 14.6 percent in October to a 1.486 million-unit pace.  Starts are now at their lowest levels since July of 2000, and are 27 percent lower than the same month a year ago.  From the breakdown, the declines were even and indicative of an overall cooling in the market.  Single-family unit starts dropped 16 percent, while multi-family units softened 9.1 percent.  The drop in demand for new houses comes on the back of continuous drops in sales and a steady bloating in inventories of unsold homes.  This dynamic has seen developers cut prices for unsold inventory, and potential investors in turn wait for the best possible prices afforded by their individual situations.  As the currency market slowly shifts its bias from possible interest rate hikes to certain economic hardship, the housing sector woes have taken center stage and will likely do so for months to come.

John Kicklighter is a Currency Strategist at FXCM.