Pound Japanese Yen Exchange Rate Hits New Highs after UK Inflation Beats Forecasts
Britain’s improving economic outlook combined with market sentiment is helping the Pound Japanese Yen (GBP/JPY) exchange rate to jump today. As the Japanese Yen (JPY) is a safe haven currency, it is weakening on improving market moods.
Since opening this week at the level of 140.97, GBP/JPY has seen mixed movement. However, after a dip earlier in the week GBP/JPY has been surging higher.
At the time of writing on Wednesday, GBP/JPY is trending near a high of 142.19. This is the best level for GBP/JPY in almost a year, since February 2020.
However, if there are fresh shocks to coronavirus or political outlooks in the coming sessions, safe haven demand could rise again and the Pound to Japanese Yen exchange rate could fall back.
Pound (GBP) Exchange Rates Jump on Surprisingly Strong UK Inflation
This morning saw the publication of Britain’s inflation rate report from December.
While UK inflation hasn’t been too influential lately, the stronger than expected data boosted hopes that Britain’s economy performed well over the holidays despite the coronavirus pandemic.
UK inflation printed at a better than expected 0.3% month-on-month, with the yearly print coming in at 0.6%.
Hopes for inflation to keep rising as the pandemic potentially calms down boosted Pound (GBP) support today. According to Robert Alster, CIO at Close Brothers Asset Management:
‘With Government debt soaring and individual purse strings tightening, Britain is extremely vulnerable to a rise in inflation in the year ahead. Short-term fluctuations caused by Brexit disruption and exchange rate shifts may not yet concern the Bank, but all eyes will be on when and how wages recover from Covid.’
Japanese Yen (JPY) Exchange Rates Unappealing as Market Optimism Improves
The safe haven Japanese Yen is weakening today, as markets once again become more optimistic about the potential for global economic recovery.
Coronavirus vaccine rollout and optimism for more bullish financial policy from the incoming US Joe Biden administration are boosting market optimism. Safe haven appeal is weaker as investors are more willing to take risks.
On top of this, Japan’s outlook is fairly gloomy lately as the nation is hit hard by the coronavirus pandemic. More major retailers in Tokyo have been closing as the city is hit by lockdowns and travel bans.
Japan also continues to see deflation, so markets are curious about the tone the Bank of Japan (BoJ) might take in its January policy decision tomorrow.
Pound Japanese Yen (GBP/JPY) Exchange Rate Outlook to be Driven by Politics, BoJ
While the Pound is jumping today, the Japanese Yen could be influenced by major events in the coming session.
US President-elect Joe Biden will be inaugurated during today’s American session. Any shocks, such as potential civil unrest, could cause fresh uncertainty which may boost demand for safe haven currencies like the Yen.
Then, Thursday’s Asian session will follow with the Bank of Japan’s (BoJ) January policy decision.
The bank is not expected to take any action on monetary policy. However, markets will be closely watching the bank’s tone on issues such as the Yen’s value and heavy deflation hitting Japanese prices.
Tomorrow will also see the publication of UK business data from the Confederation of British Industry (CBI).
However, potential developments in Britain’s coronavirus situation, as well as Friday’s UK retail sales results, are more likely to influence the Pound Japanese Yen (GBP/JPY) exchange rate.