GBP/JPY Exchange Rate Falls despite rising Bank of Japan Rate Cut Fears
The Pound Japanese Yen (GBP/JPY) exchange rate fell to ¥ following today’s publication of the Japanese inflation data for July, which remained unchanged at 0.6% – a two-year low – and falling far short of the Bank of Japan’s (BoJ) 2% goal.
Masaaki Kanno, a Chief Economist at Sony Financial Holdings, commented:
‘It’s just a matter of time before the BOJ acknowledges that the momentum of a higher inflation rate is being lost. Japan is not in deflation at all, but [inflation] is far below the BOJ’s target.’
As a result, this has left Japanese Yen traders feeling jittery as this has put further pressure on the BoJ to go ahead with stimulus measures in the near term.
Meanwhile, the US-China trade war continues to remain in focus for Japanese Yen investors, as tensions between the two superpowers is dragging down confidence in the health of the global economy.
Expectations for the BoJ to go ahead with a rate cut have further increased, with its previous policy statement dedicated to expanding stimulus if the global economy continues to show signs of slowing down, thus derailing Japan’s economic recovery.
Daniel Leussink, an Economist at Reuters, said:
‘[A]nalysts have warned the timing of a pick-up in global demand is crucial for the growth outlook.’
GBP/JPY Exchange Rate Sinks as Brexit Doubts Return Following PM’s European Visit
The Pound (GBP) has fallen today despite Prime Minister Boris Johnson’s relatively successful visit to Paris yesterday.
French President Emmanuel Macron showed some concessions on Brexit, saying that the UK and the EU could form a deal if alternatives were provided for the Irish backstop, which Macron called ‘indispensable’ to European political and economic cohesion.
However, the onus is now on the UK rectify the withdrawal agreement so that it can pass successfully through Parliament.
Various Brexiter Conservative MP have raised concerns, saying that the Irish backstop is one of many problems with the European divorce treat.
Former Brexit Secretary David Davis said:
‘I’d argue for contingency on the money. I’d argue for tighter limits, timetable limits, sunset clauses on ECJ and things like that. I’d have a small shopping list… If I were doing this for Boris, I would be insistent on is that they make the bill – the £39bn, the second half of it – contingent on progress on the future economic partnership.’
Asa a result, Sterling traders are becoming increasingly jittery as hopes fade over whether the UK will be able to secure a deal with the EU ahead of October 31.
GBP/JPY Outlook: Brexit and Global Economic Developments in Focus
Japanese Yen investors will be looking ahead to next week’s Japanese leading economic index for Jun. The figure is expected to hold steady at 93.3 however.
Global political and economic developments will also remain in focus.
If tensions increase between the US and China, we could see the JPY/GBP exchange rate begin to fall.
The GBP/JPY exchange rate will likely remain subdued, however, as no-deal Brexit fears are likely to increase as the UK must now formulate an alternative to the Irish backstop, a highly contentious issue that is likely to invite heat from Parliament.