Throughout much of the last week the GBP/JPY exchange rate was on a general uptrend as slowdown concerns continued to plague the global markets, with both the Bank of England (BoE) and Bank of Japan (BOJ) opting to leave interest rates unchanged.
Although the agreement of the Trans-Pacific Partnership free trade deal between Japan, the US and ten other Pacific Rim nations initially helped to bolster the Yen against rivals it was not long before sentiment towards the Asian currency resumed a more dovish tone. In part this was due to a larger than forecast dip in the domestic Services PMI, which declined from 51.7 to 51.4 to provide another indication of slowing growth within the Japanese economy.
Wednesday saw the Japanese Coincident Index and Leading Economic Index for August both decline on the month, defying expectations for modest upticks, and BOJ policymakers voting to hold interest rates at the current record low of 0%. While this was in line with what traders had anticipated the hesitation to engage in fresh stimulus measures was considered to be somewhat bearish, rather than an encouraging sign of faith in the ability of the domestic economy to rebound on its own steam.
Data remained weak for the Yen on Thursday as month-on-month Machinery Orders for August contracted far more severely than forecast. After a decline of -3.6% in July the figure fell by a further -5.7%, exacerbating fears of more substantial economic slowing. Although the GBP/JPY exchange rate was initially weighed down by the unexpectedly dovish tone of the latest BoE meeting minutes, this poor showing prevented the Yen from capitalising on the increased softness of the Pound.
The minutes of the previous week’s BOJ policy meeting were also found to have been more cautious in tone on Monday, as policymakers pointed to slowing emerging markets and weakening exports as the prime cause for the recent economic downturn. With Japanese Consumer Confidence also having fallen further than expected, from 41.7 to 40.6, the picture of the domestic economy did not appear especially encouraging to traders of the Yen.
Tuesday morning has, nevertheless, seen a more significant slump for the GBP/JPY currency pair as the September UK Consumer Price Index revealed a reading of negative inflation, the first since April of this year. Undermining confidence in the continued economic recovery of the nation and pushing back investors’ estimates for the BoE’s first step in monetary tightening, some as far as 2017, this bearish figure of -0.1% saw the GBP/JPY exchange rate fall to a weekly low of 182.3368.
Upcoming data which could see the Yen potentially extend its gains against Sterling will be finalised domestic Industrial Production figures and the Tertiary Industry Index. However, as the latter is expected to show a decline in growth on the month from 0.2% to 0% this could equally provide the GBP/JYP exchange rate with an opportunity to rally.