USD/JPY drops near 141.30 after improved Japan trade data, US labor, housing data eyed

• USD/JPY loses ground as Japan showed improvement in retail trade.
• Retail Trade YoY and MoM improved to 5.3% and 1.0%, respectively, in November.
• BoJ Governor Kazuo Ueda’s dovish remarks could limit the profits of the Japanese Yen.
• The speculation of the Fed’s dovish stance in early 2024 weakens the US Dollar.

USD/JPY continues its losing streak for the second straight session, trading lower around 141.30 during the Asian hours on Thursday. The improved Japanese trade data for November put pressure on the USD/JPY pair. However, the less aggressive remarks from the Bank of Japan (BoJ) Governor Kazuo Ueda could weigh on the Japanese Yen (JPY).

Japan’s Ministry of Economy, Trade and Industry revealed on Thursday that Retail Trade (YoY) improved to 5.3% from 4.1% prior. The seasonally adjusted Retail Trade (MoM) also rose to 1.0%, swinging from the previous decline of 1.6%. Moreover, the preliminary Industrial Production (YoY) improved to 5.3% from the previous reading of 1.1%.

BoJ Governor Kazuo Ueda conveyed on Wednesday that there is no rush to unwind the ultra-loose monetary policy. Ueda cited the relatively small risk of inflation running well above the 2% target and accelerating. Regarding the possibility of a policy shift at the January policy meeting, he expressed, "For now, I don't think the chance of this happening is large."

On the other side, market participants anticipate that the Federal Reserve (Fed) will implement rate cuts in the first quarter of 2024, contributing to the continuous weakening of the US Dollar (USD). This expectation follows the Fed's policy pivot in December, where the Fed's dot plot of rate expectations indicated the possibility of up to three cuts, totaling 75 basis points in rate cuts through the end of 2024.

Federal Reserve Bank of Richmond surveyed information on shipments, new orders, order backlogs, and inventories. On Wednesday, the US Richmond Fed Manufacturing Index experienced a notable decline of 11 points in December, contrary to the market's expectation of a 7-point drop. This follows a 5-point decrease in November. The data provides valuable insights into the current activity levels within the manufacturing sector. Investors will likely observe Initial Jobless Claims and Pending Home Sales on Thursday.