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Pound Japanese Yen (GBP/JPY) Exchange Rate to Reverse Losses on Disappointing JP Inflation?

Pound Japanese Yen

GBP/JPY Exchange Rate to Climb Following Japan’s Latest Inflation Data?

The Pound Japanese Yen (GBP/JPY) exchange rate is subdued this morning, having recently fallen from a 2-week high. If Japanese inflation falls later in the session, however, the Pound (GBP) may enjoy tailwinds.

At the time of writing, GBP/JPY is trading at ¥154.2220, virtually unchanged from today’s opening levels.

Pound (GBP) to Trade Mixed on Inflation Concerns?

The Pound (GBP) may continue to trade in a narrow range today, given a lack of significant data. Weighing upon sentiment, high inflation threatens to push more people into poverty as wage growth fails to match the rising cost of living.

TUC general secretary Frances O’Grady comments:

‘With prices rising faster than pay, many families will struggle to keep up with basic living costs, let alone Christmas celebrations.’

Potentially lending some upside to Sterling exchange rates, UK retail sales are expected to have risen in October by 0.5% – official figures will be released tomorrow.

This may be driven in part by an increase in online shopping: according to the Financial Times, UK retailers have benefitted from a decrease in labour costs as businesses operate with fewer workers.

Brexit is another factor that could influence Pound trading. So far this week, UK-EU relations seem amicable as reporters observe that Lord Frost lowered the temperature in the UK’s trade feud on Wednesday, saying he believes it is possible to reach agreement with the bloc.

Japanese Yen (JPY) to Tumble on Low Inflation?

The Japanese Yen (JPY) is muted against the Pound and several other peers ahead of this evening’s inflation release. Inflation is expected to have fallen on last month, supporting the Bank of Japan (BoJ)’s dovish decision to retain pandemic-era stimulus.

The BoJ maintains one of the most dovish stances among central banks of G7 nations. Also weighing upon JPY sentiment, the Kishida government is set to approve an economic stimulus package worth a record 55.7 trillion yen ($487 billion) – much higher than market estimates.

The central bank faces further difficulties as a scheme introduced to support small lenders hurt by its ultra-low interest rates has pushed up short-term borrowing costs.

As Naomi Muguruma, a senior market economist, observes:

‘The BOJ has introduced various schemes in recent years that contradict its negative rate policy, which penalises banks for holding onto cash… As a result, the core of the BOJ’s monetary policy seems to be wavering. The central bank must decide what it’s going to prioritise.’