Japanese Yen Takes Aim on 117.00 While Cable Takes Out 1.9500

· JPY CPI and wages soft, labor market tightens
· AUD Retail sales surge
· EUR German retail sales slashed on VAT
· USD U of M Survey on tap

[B]With this week essentially over data-wise, Euro traded along quietly for much of the Asian and early European sessions as EURUSD hovered above 1.3150. However, the entrance of London traders into the market brought another round of carry trade unwinding with the GBPJPY cross plunging from the 230.50 level towards the 1/8 low of 228.05. The price action fed into the majors as well, sending Cable down to break through the psychologically important 1.9500 figure and leading USDJPY to barrel towards 117.00.

Data out of Japan didn’t necessarily warrant a rally for the national currency, as Tokyo CPI contracted 0.2% during February, leaving both annual headline and core CPI flat at 0.0% despite claims from Japanese Economics Minister Hiroko Ota that “the end of deflation remains in sight.” Meanwhile, labor cash earnings slumped 1.4% in January – the sharpest decline in two and half years – despite the continuous tightening of the job market to an eight year low of 4.0%. On the flip side, overall household spending accelerated for the first time since December 2005 at a rate of 0.6%, though the statistics bureau said that unusually warm temperatures this year may have made the gain a one-off event. Nevertheless, with price growth remaining dangerously close to deflation, it is highly unlikely the Bank of Japan will be able even consider further rate normalization until much later in the year.

Out of the Euro-zone, retail sales in Germany plunged more than expected in January as the Chancellor Angela Merkel’s VAT hike to 19% from 16% took its toll on consumers. Data out of the country has started to lead broader Euro-zone economic reports lower, as manufacturing and retail PMI have both been weighed down by German figures. With European Central Bank hawks still concerned about inflation risks later in the year, the central bank is still widely expected to raised rates next week to 3.75%.

The US calendar is relatively thin compared the rest of the week, with the final reading of the University of Michigan confidence survey the only release on tap. The figure is anticipated to be revised up to 93.5 from 93.3, but even that reading would be down sharply from January’s reading of 96.9, furthering the case dip in the dollar. [/B]