Earlier this morning the Bank of Japan announced that it intends to maintain the pace of its money market operations during the New Year. The widely anticipated outcome had a limited impact on GBP/JPY trading.
The Japanese Central Bank retained its plan to increase the monetary base by ¥60-¥70 trillion on an annual basis. This will consist of around ¥50 trillion worth of government bonds (JGBs), ¥3.2 trillion worth of corporate bonds, ¥2.2 trillion worth of CP bonds, ¥1 trillion worth of exchange-traded funds (ETFs) and ¥30 billion worth of real estate investment trusts (J-REITs) per year.
The BoJ struck a mildly optimistic tone with regards to the domestic economy, commenting that business investment and industrial production are continuing to improve, however, the Bank mentioned that private consumption could slide slightly following the 2% tax hike in April 2014.
The Bank of Japan still aims to bring the Consumer Price Index inflation rate up to 2.0%, and stands ready to act with additional asset purchases if CPI begins to slip.
5-year high GBP/JPY
Sterling hit a fresh 5-year high of 171.19 against the Japanese Yen on Thursday evening as traders reacted to news that British Unemployment fell from 7.6% to 7.4% in October.
The stronger-than-expected labour market report built upon positive sentiment from recent private sector PMI surveys, which have reached a series of multi-year peaks, and robust economic growth in the second and third quarters. If job growth in Britain continues at this pace then the headline Unemployment Rate could fall to the Bank of England’s 7.0% threshold during the first half of 2014.
Please bear in mind that this scenario is very unlikely, however, in relation to the latest figures it is very reasonable to suggest that the 7.0% threshold will be reached ahead of the Bank’s projected date of Q4 2015. It is precisely this positive rate hike outlook that has allowed the Pound to rise across the board during the tail end of the week.
In addition to the 5-year high that Sterling struck against the Japanese Yen (GBP/JPY), the Pound also reached a fresh 4-year high against the Australian Dollar (GBP/AUD) and posted strong gains against the Euro, US Dollar, Canadian Dollar and New Zealand Dollar.
The Pound’s gains against the Japanese Yen were accentuated by the Federal Reserve’s decision to taper its QE3 scheme by $10 billion per month.
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