The Pound to Japanese Yen exchange rate (GBPJPY) weakened by just over half a cent earlier this morning as it was announced that Japanese Gross Domestic Product improved by more than was initially reported during the first quarter.
GBP/JPY fell to ¥152.19 as Japanese GDP was shown to have risen by 1.0% in the first three months of 2013, better than the previous estimate of 0.9% as the annualised figure accelerated by 4.1%. The improved GDP score was largely influenced by an upward revision to capital spending and the Japanese economy now sits ahead of the majority of its largest economic rivals. The Japanese year-on-year print of 4.1% beats 2.4% growth in the US, 0.6% expansion in the UK and -0.9% contraction in the Eurozone
The recent rise in fortunes for the Japanese economy reflects the large amount of money being pumped into the domestic economy by the Bank of Japan. The Japanese Central Bank unleashed an unprecedentedly large asset purchasing scheme of ¥7.5 trillion Yen ($78.6 billion) per month, which dwarfs even the Federal Reserve’s $85 billion a month QE3 programme when it is considered that the Japanese economy is around three times smaller than the US.
The US Dollar to Japanese Yen exchange rate (USD/JPY) also shrunk by around -0.6 cents, to ¥97.86 in response to the positive Japanese news.
Over the weekend it was also reported that the Chinese economy continued to decelerate during May. Chinese Consumer Prices fell by more-than-expected from 2.4% to a 3-month low of 2.1% and the Producer Price Index sunk to a 9-month low of -2.9%.
Industrial Production rose by a mildly disappointing 9.2%, compared to forecasts of 9.4% and Retail Sales printed at a slightly better-than-anticipated 12.9%. Louis Kujis of RBS said:
“Growth remains unconvincing and the momentum seems to have lost pace in May. The short-term growth outlook remains subject to risks and we may well end up revising down our growth forecast for 2013 further”.
The soft Chinese ecostats damaged demand for the Antipodean currencies – the ‘Aussie’ and the ‘Kiwi’ – due to the perceived impact that slower Chinese growth could have on the two nation’s economies. Indeed, imports fell by an annualised rate of -0.3% in May, compared to predictions of a 6.0% rise, as businesses spent less on raw materials from Australia and New Zealand.
In response to the soft Chinese data the Pound to Australian Dollar exchange rate (GBP/AUD) climbed by around 1.3 cents to a 3-year high of 1.6538. Sterling also hit a fresh 6-month high of 1.9856 (GBPNZD), after rallying by 1.4 cents against the New Zealand Dollar.
Later this week the Reserve Bank of New Zealand will decide whether or not to ease monetary policy further, but it is widely predicted that the RBNZ will stick with its current record low benchmark interest rate of 2.50%.
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