The dollar is broadly weaker while most of European remains closed for the conclusion of the Easter holiday. The euro has recovered off a weak Thursday close and stands today at $1.3273 while the British pound has added a cent to $1.4734. It’s a big data week for the United States economic calendar with retail sales, inflation and housing data all scheduled to be released this week. Also, hot on the heels of Wells Fargo earnings come first quarter announcements from JPMorgan, Goldman Sachs and Citigroup. The tone here could herald a turning point for both equities and the dollar. The script currently has economic recovery embedded within a financial sector turnaround, which in turn is hampering the dollar. Any deviation will see flaws within the Eurozone cracked wide open as investors are forced to rethink both recovery and prospects for quantitative easing by European governments.

Data released recently in Japan is forcing currency investors to focus on the prospects for a return to deflation, which would be the first time in seven years that the economy has been caught in such a spiral of falling prices. The yen is currently steady against the dollar at ¥100.30 but weaker against the euro at ¥133.15 from ¥132.00 on Thursday. The yen also weakened against Pacific and Asian units following the news that wholesale prices fell 2.2% year-over-year through March. Wholesale prices are costs faced by producers and include energy and raw materials. This was the steepest annualized decline since 2002.

Almost totally to blame for declining prices is the severe slide in commodity prices since July 2008 when crude oil and other prices peaked, or some might say burst. The Bank of Japan’s overseas commodity index fell by around half last month and includes input costs of oil, steel, copper and wheat. But as welcome as declining input costs can be, the problem becomes worse when the situation permeates into consumers’ mindsets. Consumption becomes delayed for fear of constant discounting and postponed purchases are never seen through. This is the situation Japan finds itself in today as unemployment is rising and shoppers await higher costs. Services prices of transportation costs and rents to corporations declined in February. Meanwhile the commodity price declines are allowing or forcing bakers to pass on reduced input costs in the form of cheaper bread. The forces of deflation are slowly creeping across Japanese society and the authorities are limited in their powers to deal with it.

The Bank of Japan’s deputy governor today said that monetary policy can’t be expected to deal entirely with ending the slump. Hence, yet another stimulus was recently proposed in order to bolster lending and help drive consumption up. Around an equivalent $3 billion was earmarked for corporate lending. Some $1.9 billion was marked for job creation while $370 million was set aside for subsidizing auto purchases.

Whether the stimulus is approved and implemented quickly enough remains to be seen. For now, yen buyers are hoping that Wall Street will give a green light to further stock market gains based upon earnings numbers from the investment banks. But lurking behind any rally in the yen remains the large and rapidly worsening proportion of government debt to gross domestic product employed to solve the problem.

A bad week on Wall Street could usher in a new wave of yen selling before Friday.