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BoJ Warns of Deep Economic Stagnation, Sending the Pound Japanese Yen (GBP/JPY) Exchange Rate Higher

Pound Sterling Japanese Yen (GBP/JPY) Exchange Rate Rises on BoJ’s Warning

The Pound Sterling Japanese Yen (GBP/JPY) exchange rate traded over 1% higher this morning, leaving the pairing trading at around ¥132.29.

The Japanese Yen suffered losses this morning after Bank of Japan (BoJ) policymakers warned the coronavirus pandemic could send the economy into deep economic stagnation.

In a summary of the bank’s discussions during an emergency monetary policy meeting, one policymaker saw room for further stimulus.

One BoJ official was quoted as saying:

‘Japan’s economy may continue to stagnate even after overseas economies recover, as the impact of the virus could be enormous.

‘I’m doubtful of the view Japan’s economy will stage a strong rebound once the virus is contained.’

Weaker US Dollar (USD) Sends Sterling (GBP) Higher

The Pound was able to rise against the Yen despite data revealing UK inflation slipped back from January’s six-month high.

February’s inflation fell as both the cost of fuel and video games fell, although this predated impact of the coronavirus pandemic on the British economy.

Inflation continues to remain below the Bank of England’s (BoE) 2% target, with it currently sitting at 1.7%.

However, GBP made gains as investor confidence received a boost, causing the US Dollar (USD) to fall for the third day in a row.

Investors moved away from the safety of the US Dollar, and other traditional safe-haven currencies such as the Japanese Yen after further announcements of fiscal stimulus in the US.

A deal to backstop the United States’ economy with a huge fiscal stimulus package was promised, buoying risk appetite.

This also followed earlier moves from the US Federal Reserve which also offered markets some support and helped restore confidence this week.

Commenting on this, Moh Siong Sim, currency analyst at the Bank of Singapore said:

‘Now we are seeing the fiscal bazooka in action, and that should help further ease the Dollar funding stress.

‘There has been a need for cash to ride through this period where there is a revenue shortfall.’

Pound Japanese Yen Outlook: Bank of England in Focus

Looking ahead, the Pound (GBP) could suffer some losses against the Japanese Yen (JPY) following the release of UK retail sales data.

If sales plummet further than expected, it could leave Sterling under pressure.

However, the Bank of England (BoE) are due to give their latest interest rate decision and release meeting minutes from last week’s emergency meeting.

If the minutes reveal policymakers are confident the increased stimulus and emergency rate cut will provide the British economy with further support, the Pound Japanese Yen (GBP/JPY) will extend today’s gains.