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GBP JPY Exchange Rate Dives as Kuroda Maintains Stance on ‘Helicopter Money’

Pound Japanese Yen
  • GBP Exchange Rates Decline – British retail sales fall at fastest pace since December
  • JPY Exchange Rates Rally – Bank of Japan dismisses ‘Helicopter Money’
  • UK Data Disappoints – Retail sales decline; government sees large increase in financed money
  • GBP JPY Exchange Rate Forecast to Hold Losses – Risk-on trade not enough to offset Yen appreciation

Although market sentiment improved, causing traders to move away from safe-haven assets, the GBP JPY exchange rate declined by around -1.7% in the early stages of Thursday’s European session. Sterling declined across the board thanks to profit taking and disappointing domestic data, whilst the Yen rallied versus its peers thanks to hawkish sentiment from the Bank of Japan (BOJ).

GBP JPY Exchange Rate Forecast to Hold Losses on Weak UK Retail Sales

In recent days the Pound strengthened versus most of its major peers thanks to easing concerns of political instability and positive domestic data results. The resultant uptick opened up some attractive selling opportunities; Sterling declined from weekly highs as traders took profits.

Also weighing heavily on demand for Sterling today was less-than-ideal domestic data. Although the reports refer to a pre-Brexit Britain, the results are not expected to be improved post-Brexit. Of particular disappointment was June’s retail sales, which saw the steepest drop in growth since December. On a positive note, however, the slowing retail sales growth was thanks to poor weather rather than Brexit uncertainty.

‘All types of stores showed growth in June with the exception of clothing and footwear which struggled again due to the changeable weather. But department stores continued to see strong sales compared with last June – boosted by events such as Father’s Day, the Euro 2016 football and the Queen’s official birthday,’ said the Office for National Statistics (ONS).

GBP JPY Exchange Rate: Yen Rallies despite Heightened Risk-Appetite

The combination of rising oil prices and Asian equities closing the local session higher caused market sentiment to improve significantly. However, despite dampened demand for safe-haven assets, the Japanese Yen rallied across the board.

Yen appreciation can be linked to positive sentiment towards the Bank of Japan after Governor Kuroda dismissed the possibility of using ‘Helicopter Money’, a controversial policy that would pay every citizen benefits in the hope that consumption would rise.

Writing for Bloomberg, Toru Fujioka and Masahiro Hidaka stated;

‘Kuroda, speaking in a BBC Radio 4 program aired Thursday, said there was no need and no possibility of helicopter money. He also underscored that the BOJ is determined to eradicate Japan’s deflationary mind-set, and can add stimulus in its three dimensions of easing if needed.’

Additional Yen gains can be linked to mostly positive domestic data results. Although June’s final figure for Machine Tool Orders contracted by -19.9%, the result was an improvement on the previous figure of -24.7%.

GBP JPY Exchange Rate Forecast: Sterling to Hold Losses ahead of Post-Brexit PMIs

Given the absence of further ecostats pertaining to either the UK or Japan today, the GBP JPY exchange rate is likely to hold losses for the remainder of Thursday’s European session.

Friday should see significant volatility, however. Whilst Japanese Manufacturing PMI data may well provoke movement, traders will be focussed on the UK’s data published later in the morning. The UK’s Manufacturing, Composite and Services PMIs will be the first to pertain to a post-Brexit Britain and will be very closely scrutinised by traders. It is worth noting that each PMI is expected to fall significantly below the 50 mark that separates growth from contraction.

The GBP JPY exchange rate was trending within the range of 139.0600 to 142.2700 during Thursday’s European session.

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