The week so far has seen the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate climb from a low of 184.3460 on Tuesday to 187.7300 today, the best result for Sterling in September so far. The primary cause for this boost in Sterling’s performance has been a combination of the UK economic publications on Wednesday raising confidence in the Pound and an economic downgrade of Japan’s debt rating to A+ from AA- by Standard & Poor’s (S&P).
This week began poorly for the Pound, with a lack of UK economic releases on Monday being compounded by a polarising set of inflation rates for August on Tuesday. The monthly CPI increased relative to July’s -0.2% by posting 0.2%, although the base annual and Core annual CPIs both declined, from 0.1% to 0% and from 1.2% to 1% respectively. The problem was that while the recent Bank of England (BoE) minutes had offered a prediction of the UK inflation rate remaining at or close to 0% until the end of the year, the initial complacency surrounding this announcement gave way to concern as the day wore on.
Releases on Tuesday were not entirely one-sided against the Pound in the pairing, however; the Japanese Reuters Tankan Index fell significantly from 17 points to 9. The lack of positivity coming out of Japan continued on Wednesday with the annual Machine Tool Orders for August falling by -16.5%, as they had previously. Wednesday also saw the Pound initiate its bounce back against the Yen, with the UK Earnings and Employment figures for July printing positively as far as Sterling was concerned. The Employment Change for the 3 months to the end of July rose by 42k persons and the Unemployment rate dropped by -0.1% from 5.6% to 5.5%. Earnings also increased, so the Pound leapt up sharply from 184.3807 to 187.0172 soon after the results were announced.
Today, Sterling has been dealt a blow by the UK Retail Sales for August falling below forecasts; both the base annual and annual Including Auto Fuel dropped from 4.1% to below the expected 3.8%. Despite this, the Yen has been given a larger dose of bad news by the S&P downgrade. In a statement, the blame was explicitly levelled on the Prime Minister himself, Shinzo Abe. The agency said that ‘Despite showing initial promise, we believe that the government’s economic revival strategy – dubbed ‘Abeonomics’ – will not be able to reverse this deterioration in the next two to three years’.
For the remainder of this week and the next, Pound Sterling/Japanese Yen exchange rate movement may occur as a result of the Bank of Japan’s (BoJ) Monetary Policy Committee (MPC) minutes for August 6
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, the UK Public Sector Net Borrowing results for August, the Japanese Nikkei Japan PMI for Manufacturing and the Japanese National annual CPI for August.
Although they are typically highly influential, the BoJ MPC minutes may have a reduced impact tomorrow due to the extraordinary changes that have taken place since the beginning of August, namely the stock market crash at the end of that month. None of the other results out next week have forecasts assigned to them, but of the three, the Japanese CPI (announced on Friday) is expected to have the biggest impact.