Reduced BoJ Monetary Stimulus Commitment Drags on Pound Japanese Yen Exchange Rate
As the Bank of Japan (BoJ) made moves to reduce its monetary stimulus programme the Pound to Japanese Yen (GBP/JPY) exchange rate was left on the back foot.
The central bank’s announcement that it would allow greater fluctuation in bond yields, moving towards a more ‘sustainable’ stimulus policy, the appeal of the Japanese Yen (JPY) improved.
While this move does not represent a massive shift in policy the move away from the BoJ’s more aggressive stimulus approach gave investors greater cause for confidence.
Even though the UK GfK consumer confidence index bettered forecasts, jumping from -23 to -16 in March, this was not enough to shore up demand for Pound Sterling (GBP), meanwhile.
A sharp increase in the latest public sector net borrowing figure pointed towards a greater degree of government borrowing, casting fresh doubt over the strength of the economic outlook.
Pound Exchange Rates Vulnerable Ahead of UK Unemployment Rate Uptick
Fresh losses could be in store for GBP exchange rates next week if the UK unemployment rate picks up as forecast on the month.
With unemployment expected to climb from 5.1% to 5.2% in January worries over the health of the UK labour market looks set to rise.
As long as employment conditions appear in decline in the face of the ongoing Covid-19 crisis the potential for any Pound rally appears limited in the near term.
However, if the accompanying average earnings data shows improvement this could help to limit any potential GBP/JPY exchange rate downside.
Evidence of stronger wage growth may encourage greater optimism in the health of the UK economy, with higher earnings likely to translate into higher consumer spending and economic activity.
If wage growth fails to pick up as anticipated this may also leave the Pound vulnerable to selling pressure on Tuesday.
Japanese Yen Set to Benefit from Risk Aversion and Solid Leading Index
As long as market risk appetite remains muted in response to lingering pandemic concerns this could limit the risk of Japanese Yen losses.
Stronger levels of safe-haven demand could help to keep JPY exchange rates biased to the upside in the days ahead.
Another boost for the Yen could come on the back of January’s leading index report, with the finalised figure expected to confirm a solid monthly uptick.
Signs of increased resilience within the Japanese economy may give the GBP/JPY exchange rate a fresh dent, with a stronger economy likely to improve the appeal of the Yen.
On the other hand, any negative revision to the finalised figure could see the Pound to Japanese Yen recovering some of its lost ground as doubts over the strength of the Japanese outlook persist.