Japanese Consumer Confidence (DEC) (05:00 GMT; 00:00 EDT)
Consensus:    47.2
Previous:     48.9

Outlook: Japanese consumer confidence looks to dip further through December, as languishing domestic wages threaten to derail economic sentiment. The data will become particularly significant ahead of the following day’s Bank of Japan interest rate statement, as market expectations ahead of the event are less than clear. Though the bank is unlikely reference consumer sentiment figures, their predictive power for headline spending growth may actually influence the bank’s rhetoric following such a decision. As such, Yen bulls hope that tomorrow’s confidence figures will surprise to the upside, but consistent readings below the neutral 50.0 level bode poorly for the future of economic sentiment.

Previous: Consumer confidence inched higher through the month of November, as softer energy prices boosted outlook on economic welfare. Regardless, the number remained a touch shy of the 50.0 level, implying that the Japanese consumer remained fundamentally bearish on aggregate. Bank of Japan officials have cited downward risks to broader domestic growth, as consumer spending continued lower through the final months of 2006. Indeed, if the critical retail spending figure fails to rebound in coming months, market commentators can effectively rule out a more hawkish BoJ stance on monetary policy. As such, tomorrow’s figure becomes incredibly important for the subsequent Bank decision, with risks arguably remaining further to the downside for the Japanese currency.

UK Unemployment (DEC) (09:30 GMT; 04:30 EDT)
                  (Jobless Claims)         (Claimant Rate)
Consensus:        -5.7K                        3.0%
Previous:            -3.5K                        3.0%

Outlook: The recent strength in employment trends is expected to have held true through December. Economists’ consensus factor in a 5,700-person drop in jobless benefits claims in last month, which would leave the claimant count rate unchanged at 3.0 percent. A few periphery indicators that have already been released provide a muddy picture for the likelihood of a pick up in job growth in December. From the positive side of the balance sheet, both construction and service activity surveys for the period beat expectations with higher prints. What’s more, both of these sectors make up for a large majority of existing employment in the UK. Alternatively, the manufacturing gauge for the same month stumbled, suggesting hiring the may be the least of the factory group’s worries as demand and production look questionable. Perhaps lending a more direct lead in for employment health were the consumer sentiment gauges for December. Both the GfK and Nationwide numbers worsened as housing and employment worries reined. Pulling back for the broad picture, hiring may not be as important as wage growth. After the BoE’s surprise rate hike last week, inflation through wage growth has been bumped up on the laundry list of market-moving fundamentals.

Previous:  Employment grew for the second consecutive month in November as the government’s unemployment gauge reported 5,700 fewer Brits filed for jobless benefits. The number of employed people in the economy conversely grew 41,000 to 29 million, the second highest level on record. These numbers were particularly interesting for the Bank of England as they produce their forecasts for inflation growth. In response to the high level of employment, demand for skilled labor has in turn driven wage inflation. Up until October, average earnings growth marked its lowest level since July 2003. However, the subsequent pickup in November, leveraged fears that pay negotiations conducted through the opening months of the year will follow the high level of the RPI to further escalate price pressures. In response, the central bank acted with a rate hike in November and another preemptive increase in January.

US Producer Price Index Ex Food & Energy (DEC) (13:30 GMT; 00:00 EDT)
                        (MoM)                    (YoY)
Consensus:        0.1%                      2.1%
Previous:            1.3%                      1.8%

Outlook: US core producer prices likely slowed their torrid pace through the month of December, but a more favorable base month will take the Year-on-Year inflation rate to its highest in over a year. Fast declining oil prices likely left the headline year-end rate at a meager 0.7 percent, but rising automobile and light trucks prices probably kept the more closely watched core measure higher. Given the recent run of bullish US economic data, there is little reason to second-guess consensus views of generally robust price pressures. If in fact the numbers surprise to the downside, however, we could see a significant rebound in quickly falling bond prices—with falling yields to allow for a US dollar retrace.

Previous: US PPI surprised markets through November, with core prices rising an incredible 1.3 percent on a monthly basis. The year-on-year change was similarly pronounced, with prices excluding food and energy costs reaching a 2.1 percent inflation rate through the preceding 12 months. Such an upward surge subsequently boosted inflationary expectations down the road, with bond prices and interest rate expectations moving accordingly. In fact, yields on the 10-year Treasury Note have added 25 basis points since the figures were released. Given the large run in interest rate-sensitive asset classes, many feel that any negative surprises could give reason for sharp retraces in bonds and interest rate futures. As such, risks remain to the downside for the US dollar if tomorrow’s numbers come in below consensus estimates.

John Kicklighter is a Currency Strategist at FXCM.