The Pound to Japanese Yen exchange rate (GBP/JPY) remained fairly flat following a rather predictable Minutes report from the Bank of Japan last night.
The Minutes showed that BoJ policymakers voted unanimously to leave the expansive asset purchasing scheme at its current pace of around 7 trillion Yen a month:
“The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion Yen”.
The BoJ also expressed concerns that inflation risks to the downside are currently greater than to the upside, despite the Bank’s ambitious stimulus programme that is aimed at flooding the market with cheap cash to drive investors into the real economy and boost Consumer Prices.
It was also noted that soft growth in emerging economies is impacting the Japanese export market, and could pose the greatest threat to Japanese GDP growth over the next six months. It is thought that the BoJ will opt to increase its quantitative easing scheme at some point in the first half of 2014 in order to combat these negative influences.
Sterling fluctuated close to 164.20 against the Japanese Yen following the release of the Minutes report.
The Pound struck a 5-year high of 165.28 against the Yen yesterday morning as investors reacted to a deal in Iran to curb the Middle Eastern nation’s nuclear programme. The positive political development was seen to reduce the probability of conflict in the region and this caused risk appetite to swell, which in turn proved detrimental to the safe haven Japanese Yen.
Because of its relatively low yield, the Yen is often sold during times of positive risk sentiment as traders strive for steeper profit margins from alternative investments. This is exactly what happened yesterday as GBP/JPY struck its highest level since October 2008.
There are no significant British or Japanese data releases due today, but tomorrow the Office for National Statistics is set to confirm that the UK economy expanded by 0.8% during the third quarter. If the growth print comes in as expected then Sterling is likely to remain at its current levels, but if the GDP report comes in better-than-expected then it is entirely possible that the Pound could push the downtrodden Japanese Yen to another 5-year high.
The Yen is currently at a 6-month low against the US Dollar, and USD/JPY could appreciate further tomorrow if American data impresses. The US Consumer Confidence index is forecast to improve from 71.2 to 72.4, which could bolster demand for the ‘Greenback’ if it is seen to increase the chance of a Dec-taper from the Federal Reserve.