Over the past week, the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate was trending within the range of 184.3807 to 187.9212.
After the Federal Open Market Committee (FOMC) decided to hold the cash rate in September, the Japanese Yen softened versus its major peers. This was partly due to heightened demand for high-yielding assets, but also as a result of speculation that the Federal Reserve holding rates would prompt the Bank of Japan (BOJ) to ease monetary policy. Prior to the FOMC decision the BOJ avoided loosening monetary policy, with Governor Haruhiko Kuroda confident that the country could weather the hit from China’s slowdown and weak demand in the rest of Asia. However, Kuroda did state that the central bank was ready and willing to deploy more support if necessary.
Given the central bank’s limited options when it comes to the arsenal of policy alternatives, the BOJ’s go to policy shift will be to extend the 80 trillion yen ($665 billion) per year asset buying scheme. However, thus far quantitative easing has failed to impact consumer prices, with weak inflationary pressures the primary concern for BOJ officials. With mounting speculation regarding BOJ policy easing, demand for the Yen dampened considerably.
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate declined by around -1.1% during Tuesday’s European session.
With a complete absence of Japanese economic data on Tuesday, the Pound Sterling to Japanese Yen declined. The depreciation is the result of disappointing British public finance data which showed the UK government borrowed a greater-than-expected amount in August. The Yen also found additional support on Tuesday thanks to demand for safe-haven assets. With speculation mounting that the Federal Reserve will hike the cash rate within 2015, and with increased bets regarding European Central Bank (ECB) policy easing, the Japanese Yen’s safe-haven credentials caused the asset to advance versus many of its major peers.
Looking ahead, with the exception of Wednesday, the Japanese economic docket will see several potentially influential domestic data publications. On Thursday the Nikkei Manufacturing PMI will be of significance to those invested in the Yen. Friday’s inflation data will be of heightened importance given that the lack of inflationary pressure is the primary concern for the BOJ. A weak result could prompt the Japanese central bank to expand quantitative easing. August’s yearly Inflation Rate is predicted to hold steady at 0.2%; well below the institution’s inflationary target of 2.0%.
In terms of the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate, movement may be limited as the British economic docket is comparatively sparse of influential ecostats. Thursday’s BBA Loans for House Purchase is the solitary British data report for the remainder of the week. Therefore, Sterling movement will likely be the result of changes in market sentiment and developments regarding attempts to merge the British equity markets with China’s.
During Tuesday’s European session, the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate was trending within the range of 184.6500 to 186.9400.