Last week the Pound Sterling to Japanese Yen (JPY) exchange rate was trading in the range of 191.4303 to 192.3612. Today, the currency pair was trading in the region of 193.4900. The Japanese Yen weakened against the Pound (GBP), US Dollar (USD) and Euro (EUR) despite the release of better-than-forecast trade balance data.
Market attention was focused on the US Federal Reserve’s latest policy statement due for publication late in the day. Investors will be looking closely for any signs as to when policy makers will choose to raise interest rates. With a run of mixed economic data releases out of the US in recent weeks it is unclear whether the Fed will still be in favour of a rate hike in September.
Debate is increasing between inflation hawks and inflation doves over what the right move for the Fed should be. The hawks are warning of the dangers that a prolonged period of low interest rates could create. Doves, however, are arguing that wage growth and overall inflation must be higher for a rate hike to be justified.
Japan’s trade deficit shrank by a massive 76.5% in May from the previous year to 216.0 billion Yen ($1.75 billion); as falling crude oil prices continued to help keep imports lower. Crude imports tumbled 31.7% for a 10
th
consecutive monthly decline as average oil prices dropped 45.8%.
On a monthly basis, the nation’s trade balance remained in the red for a second consecutive month due to a fairly soft 2.4% rise in exports. The previous month saw exports rise by 8%. The value of imports meanwhile fell 8.7%, a fifth consecutive monthly drop.
‘In addition to weakening demand for automobiles, exports of construction machines and mining machinery are also declining as resource-rich countries reduce capital spending because of lower commodity prices. The trade balance is likely to remain in the red near the break-even level for a while,’ said Japanese economist Hiroshi Watanabe.
The Pound Sterling advanced as data showed that unemployment in the UK remained at 5.5% and average earnings increased by a better-than-forecast amount in April. Average earnings excluding bonuses, rose 2.7%, up from the preceding month’s revised figure of 2.3% and was higher than the 2.5% forecast. Average earnings including bonuses, also rose 2.7%, beating forecasts for a rise of 2.1%.
The Federal Reserve rate decision will be announced at 19:00pm GMT.