Japanese Retail Trade (DEC) (23:50 GMT; 18:50 EST)
                     (MoM)  (YoY)
Consensus:    N/A     -0.5%
Previous:        0.0%   -0.2%

Outlook: Retail trade during the month of December in Japan is anticipated to contract once again, as the annual rate is estimated to hit -0.5 percent. Consumption in the Japanese economy has been astoundingly weak, despite the fact that businesses in the country have been quite profitable and continue to drive expansion via investment. However, until Japanese firms decide to devote funds towards wages, consumers will have little reason to spend. Additionally, inflation has been weighed down as retailers have no flexibility to raise prices amidst low demand. As a result, the Bank of Japan may be forced to wait even longer in February to normalize rates, leaving the Japanese Yen and JGB yields vulnerable.

Previous: Japanese retail sales were revised lower in November from 0.1 percent to 0.0 percent, bringing the annual rate down to -0.2 percent. The only positive contributor in the report was fuel sales, which climbed 5.3 percent from a year earlier and marked the 32nd consecutive month of gains. However, a 1.3 percent drop in food sales kept the headline figure lower, as the price of fresh fruit and vegetables declined 0.9 percent in the month. While price swings can make a significant impact on the figure, spending on the part of consumers have been overwhelmingly weak as stagnant wage growth provides little impetus for the Japanese to loosen their purse strings.

Japanese Jobless Rate (DEC) (23:30 GMT; 18:30 EST)
Consensus: 4.0%
Previous: 4.0%

Outlook: Unemployment in the world’s second largest economy is expected to have held at an 8-year low in December. From the data coffers, there are a number of indicators that support and contradict this consensus from both the employer’s and employee’s perspective. Most of the support for continued strength in labor trends comes from Japanese firms. The quarterly Tankan reports, conducted by the Bank of Japan, show executives forecast strength that would likely demand additions to the payrolls in order to keep up with demand. The manufacturing indicator’s fourth quarter print was the highest in 15 years, while the service-sector survey slipped slightly from a similar record. Elsewhere, the BSI report for the same period reported a 6.4 percent jump in earnings expectations. However, there are a few detractors. The monthly Small Business Confidence survey for December slipped to a four-month low 49.1 reading. Even last month’s consumer sentiment indicator has withdrawn is support of a strong employment forecast. Optimism in the subject sector dropped to a 15-month low. Perhaps the most direct projection of December employment is the Manpower Employment Outlook for the first quarter. Since the data is collected at the end of the year, expectations typically reflect employment trends at the time. Overall, the indicator rose to a new high with notable increases in finance, manufacturing and construction. When all is said and done though, economists and policy officials may be less worried about already strong employment and more concerned with consumers’ plans to spend.

Previous: The jobless rate in Japan unexpectedly fell to its lowest level since 1998, as exports sought more hands to fulfill the steady growth in foreign orders. Beyond marking a recent historical low, the 4 percent unemployment rate is also seen as the “threshold” after which wage pressures would start to develop, according to BoJ Governor Fukui. Looking to the job-to-applicant ratio, the short supply of skilled labor has been an issue for some time. In November, the ratio held at 1.06, and has held above 1.0 for the entire year. What’s more, the Bank of Japan’s survey of large companies reveals the most prevalent labor shortages in nearly 14 years. Nevertheless, despite the imbalance between demand and supply for labor, Japanese firms have yet to significantly pass their strong revenues onto their employees. Wages have stagnated during the recent strength in hiring, leading Prime Minster Shinzo Abe to implore hiring managers to pass on the profit to workers. The central bank has pointed to a lack of consumer spending as its reasoning for shunting further interest rate hikes after July’s 0.25 percent boost.

Japanese Household Spending (YoY) (DEC) (23:30 GMT; 18:30 EST)
Consensus: -1.2%
Previous: -0.7%

Outlook: Consumer spending is expected to contract for yet another month December, potentially leaving the Bank of Japan idle for months to come. Economists predict Japanese housing consumption dropped 1.2 percent in December from a year before. This would exacerbate the pace seen in the month before. Recent sector spending gauges readily support this consensus. Of four nationwide sales reports, three report declines. Department store sales slid 2.3 percent for its biggest one month decline since March of 2005. Not to be outdone, chain store sales fell 3.8 percent for its own 22-month record. Also, though convenience store curbed its decent somewhat in December, the 0.2 percent annual contraction marked the sixth consecutive decline. The sole improvement came from the housing sector. Condo sales in the Tokyo grew 1.5 percent in December from the same period a year, the first increase in five months. However, it may be the consumer’s pessimistic mood in December that best foretells their spending habits. The consumer confidence gauge for the same month fell to its lowest level since September of 2005, despite an eight-year low in unemployment and easing energy prices.

Previous: Consumer spending slipped 0.7 percent in November from a year earlier, cooling from a 2.4 percent pace and 6 percent pace in the prior two months respectively. Domestic spending remains the key to monetary policy and economic growth in Japan. The economy has enjoyed a robust business sector that was encouraged by export demand and recycled into local capital investment. However, consumers have been left out of the loop as firms’ spending has gone to machinery and technology rather to increased compensation. Consequentially, consumers have turned to savings as the traditionally conservative populace creates a buffer for itself in the event of a downturn in the economy that looks all-too real given recent history. Conversely, the lack of consumer spending has stunted the return of inflation, and in turn left the BoJ with few reasons to lift the overnight lending rate in the face of heated political pressure. Should this trend continue, the near-record low lending rates could once again through the economy out of balance and lead to investment bubbles like the one in the 1980s.

Japanese Industrial Production (DEC P) (00:30 GMT; 18:30 EDT)
                   (MoM)   (YoY)
Consensus:   0.4%    4.3%
Previous:       0.8%    4.9%

Outlook: Japanese industrial production figures are set to impress, as a clearly weak currency continues to bolster demand from abroad. Though the year-over-year rate is likely to decline off of recent highs, it remains clear that domestic industry remains one of the strongest pillars of the world’s second largest economy. A small moderation may be in order as November’s report showed a worse inventory to shipment ratio, but annual growth over 4 percent clearly bodes well for domestic producers. Of course, any negative surprises could clearly impact broader Japan outlook, causing a sympathetic drop in the Japanese Yen.

Previous: Industrial production grew to a record through November, as favorable exchange rates increased competitiveness of Japanese goods in foreign markets. The bullish result theoretically boosted the likelihood of a subsequent Bank of Japan interest rate hike, but the central bank opted to stand pat at its subsequent monetary policy meeting. Officials cite poor domestic spending as a limiting factor in the rate hike debate, with overdependence on export growth leaving the economy overly vulnerable to international influence. Markets will nonetheless watch the upcoming IP figures, with any negative surprises to lead to further Japanese Yen weakness.

John Kicklighter is a Currency Strategist at FXCM.