Japanese Eco Watchers (JAN) (07:00 GMT; 02:00 EST)
                   (Current)   (Outlook)
Consensus:    49.0          N/A
Previous:        48.9         48.9

Outlook: Merchants that are deemed ‘close to the consumer’ are expected to report a slightly higher level of confidence in January. A boost in sentiment may be predominately based in the recent Bank of Japan interest rate decision. Leading into the policy meeting, debate between economists and board members heated up. Despite the tepid level of inflation, speculation surrounding another rate hike at the conclusion of the January 17th meeting grew to new highs. When the decision passed without incidence; consumers, whose confidence has been on the lam recently, likely responded with an optimistic turn. On the other hand, recent data suggests optimists may have been harder to come by in January. In the month before, the jobless rate grew, earnings slipped 0.6 percent and spending dropped 1.9 percent. Offering a more up to date gauge of sentiment, the small business confidence survey for January fell further from the pivotal 50.0 level than had been expected. Should a positive outlook continue to elude the island nation, growth and inflation rates will increasingly depend on the unreliable export market.

Previous: Despite record bonuses at Japan’s largest companies and an unyielding stock rally, pessimism dominated in December. In the final month of the year, confidence passed unchanged from the previous period’s 48.9 print. A reading below 50.0 means the number of pessimists in the economy outnumber optimists. The indicator was particularly disappointing for those holding out for an eventual BoJ rate hike. Since their surprise 25 basis point hike in July, the central bank has passed up on further removal of liquidity due to concerns over tepid consumer spending. Going into the holiday season, the absence of the consumer’s yen would be particularly depressing for firms’ year end results. Looking beyond current conditions, the outlook component for the same period slipped 0.8 points to 48.9.

Swiss Consumer Price Index (JAN) (06:45 GMT; 01:45 EST)
                    (MoM)   (YoY)
Consensus:    -0.3%   0.5%
Previous:         0.0%   0.6%

Outlook: Inflation in Swiss consumer basket has consistently held below the SNB’s target rate. Now, with predictions calling for a further deceleration in the annual rate, the precedence for decisions based on inflation may cull rate hikes that are seen as almost certain by financial markets. Economists expect prices slipped 0.3 percent on average last month, marking the third consecutive month in which inflation has been absent. If predictions pan out, then the annual gauge could in turn pull back to 0.5 percent growth. Dour expectations for the CPI gauge come on a few different fronts. In the past month, Swiss firms may have lowered rates on exported goods to offset the effects of Germany’s VAT tax hike on its citizens’ demand. Domestically, conditions are less clear cut. Consumers continue to put their francs to use as unemployment holds at its relative lows while wage competition is used to attract the fewer skilled workers left. Conversely, the KOF indicator used to project economic growth in the coming three to six months continues to slide. More time sensitive, factory activity in January dropped with a notable slip in the employment gauge to boot.

Previous: The Consumer Price Index passed another month without change. On the other hand, the annual gauge, which is more important for the policy makers, accelerated for the second month to a 0.6 percent pace. Despite price pressures holding well below the central bank’s 2.0 percent tolerance level, the policy group decided to lift overnight lending rates by another 25 basis points for the month. Looking to the breakdown of the extensive consumer basket, there were few significant changes to sway the overall indicator. One of the key shifts came from the petroleum group which slipped 0.6 percent in December for the fourth consecutive monthly drop. Elsewhere, a 0.6 percent jump in seasonal and household goods for the month helped offset the contraction. Also notable, was the absence of change in the goods and services prices for December, as the former slipped in November while the latter rose.

Bank of England Rate Decision (12:00 GMT; 07:00 EST)
Consensus: 5.25%
Previous: 5.25%

Outlook: The Bank of England is widely anticipated to leave rates steady at 5.25 percent in February after enacting a surprise rate hike in January. The decision was a close call last time around, with the vote for monetary policy tightening at a tight 5-4. Will the central bankers be just as split this time around? Potentially, as the situation remains just as muddy amidst mixed economic data. While inflation has accelerated to 3.0 percent and M4 money supply has maintained a lofty 12.8 percent, the housing sector has started to take a hit on the higher interest rates. Recent housing indicators from the Nationwide Building Society showed prices plunging from 9.3 percent to 10.5 percent while the Royal Institute of Chartered Surveyors’ indicator dropped to 37 percent from 47 percent. Furthermore, demand for properties appear to be falling as well, with the British Bankers’ Association’s measure of mortgage approvals nose-diving 41 percent to 4,500 and the Bank of England’s measure hitting an eight-month low of 113,000. Nevertheless, the Bank of England prefers to preempt inflation pressures, and with the key 2007 wage round looming on the horizon, there is certainly upside risk for another 25 basis point hike to 5.50 percent.

European Central Bank Rate Decision (12:45 GMT; 07:45 EDT)
Consensus: 3.50%
Previous: 3.50%

Outlook: There is an overwhelming consensus that the European Central Bank will leave rates unchanged at tomorrow’s meeting, but analyst likewise predict that ECB President Trichet will signal that the bank will raise rates at its March announcement. This expectation has translated into Eurodollar interest rate future weakness, with the front-month implied EURIBOR reflecting a 100% likelihood of such a rate move. Despite the near-perfect agreement across markets, however, a March ECB rate hike is far from a perfect certainty. All eyes and ears will turn to tomorrow’s central bank commentary, with Euro bulls hopeful that the central bank governor will be clear in foreshadowing a hike down the line. Given that the ECB is one of the most transparent central banks in the world, it should be fairly obvious what the Governing Council is likely to do in March at the conclusion of Jean Claude Trichet’s Question and Answer session.

Euro strength depends on relatively clear ECB hawkishness, with currency traders likely to send the currency moving on the smallest of innuendo.

John Kicklighter is a Currency Strategist at FXCM.