Over the past week, the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate was trending within the range of 180.8775 to 183.6901.
In general, the Japanese Yen has been struggling of late versus its major peers. The long-term difficulties in emerging markets caused many to speculate that the Bank of Japan (BOJ) will look to ease monetary policy, as trade has suffered significantly. The Yen depreciation has been somewhat gradual, however, thanks to strength in the domestic economy. Despite this, exports and production have still been heavily impacted by China’s struggles and bearish emerging market assets.
In addition to troubles in emerging markets weighing on demand for the Japanese Yen, a resurgence of trader risk-appetite also stymied Yen gains. With global equity markets returning to stability, causing commodity prices to improve, investors have been looking for high-yielding assets. As an emerging-market currency, the Japanese Yen also tends to decline when market sentiment improves. It is fair to say, however, that this could be short-term issue given that China’s equity market has been closed for five-day holiday. Should the Shanghai Composite Index struggle when it reopens, market sentiment is likely to dampen considerably.
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate advanced by around 0.8% during Wednesday’s European session.
The Japanese asset continued to hold a weak position versus its major peers on Wednesday. Risk appetite continues to weigh on demand, but the Yen avoided a larger depreciation thanks to a BOJ policy statement and accompanying press conference. The statement showed that the central bank held off easing monetary policy because the domestic economy was strengthening. However, the report did acknowledge the likelihood of easing in the future with the emerging-market slump having a significantly detrimental impact on production and trade.
After a report from the International Monetary Fund (IMF) predicted slower global economic growth for the fourth consecutive year, the Yen softened versus its major peers. The IMF forecast global weakness in response to a China-led slowdown of emerging markets. This is likely to cause the BOJ to consider easing monetary policy within the next few meetings. Indeed, the IMF told the BOJ that if Japan is to reach its inflation target of 2% the central bank will need to consider monetary easing soon.
Looking ahead, Yen movement will most likely be provoked by changes in market sentiment and any statements from BOJ officials. When the Shanghai Composite Index reopens the Yen could see some heightened demand if share prices drop.
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate was trending within the range of 182.4800 to 183.7800 during Wednesday’s European session.