Dollar Up Vs. Yen Ahead Of U.S. Sales Report

The U.S. dollar rose Tuesday, with the yen losing ground after a report that Japan will look into cutting corporate taxes, while the greenback looked to U.S. retail sales to reinforce expectations that monetary stimulus will soon be reduced.

The dollar  climbed to 97.30 yen from ¥96.66 late Monday in North America, with Japanese stocks pushing higher after the Nikkei newspaper reported that Japan’s Prime Minister Shinzo Abe may propose reducing corporate taxes to offset pressure on growth from a planned increase in the national consumption tax.

Abe, who hasn’t made a final decision on implementing a two-stage sales-tax hike, has called for a study on using corporate tax cuts to pull in more foreign capital and enhance economic growth.

The planned hike in the consumption tax is aimed at lowering the country’s massive public debt.

The yen on Tuesday briefly strengthened after Japanese core machinery orders fell 2.7% in June, better than expectations for a 7.1% drop, according to Dow Jones Newswires. Core machinery orders are seen as a leading indicator of capital spending in Japan.

A day earlier, Japan’s second-quarter gross domestic product report showed an unexpected decline in capital expenditure. Japan’s economy grew an annualized 2.6% in the April-June period from a year ago, slowing sharply from the 4.1% rate in the first quarter.

Investors later Tuesday will consider the pace of spending by U.S. consumers in July. Economists polled by MarketWatch expect a 0.3% rise in retail sales, or a 0.4% increase when excluding autos.

The amount by which retail sales increased last month “plays a particularly important role in the Federal Reserve’s monetary-policy plans. With only five weeks to go before the September [Fed policy] meeting, every piece of data counts,” BK Asset Management managing director Kathy Lien wrote on Monday.

The Federal Reserve has said it will begin reducing asset purchases from $85 billion a month if the economy continues to improve within its forecasts. Two-thirds of economists on Wall Street expect tapering to begin in September, a move that would widely be seen as dollar-positive.

For the dollar to find upside support from the sales report, spending growth needs to exceed 0.7%, said Lien.

If sales grow by only 0.3% to 0.4%, “investors will remain confused, which will not help the dollar because it leaves the market unclear about whether the U.S. economy can handle a reduction in stimulus at this time,” she said.

The Fed will see two other retail sales reports and another monthly jobs report before its two-day meeting starts on Sept. 17.

The Commerce Department is scheduled to release retail-sales data at 8:30 a.m. Eastern.

Dollar gauges bounce higher

The ICE dollar index , which tracks the U.S. currency’s movement against six rivals, rose to 81.499, up from 81.331 late Monday in North America trade.

The WSJ Dollar Index , which uses a slightly wider comparison basket, rose to 73.74 from 73.61.

The indexes gained as the dollar also logged advances against the euro and the British pound ahead of several European economic reports due out, including German economic sentiment and euro-zone industrial production.

The euro   fell to $1.3293 from $1.3308. The British pound   declined to $1.5454 from $1.5471.

Meanwhile, the Australian dollar   bought 91.16 U.S. cents, pulling back from 91.50 U.S. cents.

Source : Marketwatch