The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate traded between lows of 175.2050 and highs of 179.45893 during the past seven days.
The Japanese Yen has benefitted from sparse data from the UK over the Christmas period, with Japanese data dominating the charts on the 24
th
, 25
th
and 27
th
of December. Even though not all of the data printed positively, the JPY/GBP exchange rate has continued to steadily gain ground since the beginning of December, buoyed by improving sentiment, a steady rate of inflation growth and increased construction activity.
Although the Japanese Small Business Confidence Index fell from 49.0 to 48.3 on the 22
nd
, a recent poll of more than 100 large Japanese companies shows that 90% of businesses are positive regarding their 2016 outlook and expect the economy to expand. While more than 50% believe that the slowdown in the Chinese economy will negatively impact their business activity, over 60% believe an increase in private consumption will fuel economic growth, while 45% predict capital expenditure will be a major factor. Only one of the companies surveyed anticipated a slowdown in growth, with none of the companies questioned anticipating a contraction in the economy.
Pound Sterling was kept weak over the Christmas period by a larger-than-forecast increase in Public Sector Net Borrowing, which showed that the deficit widened in November to £13.6 billion: £2.5 billion more than originally expected. Weakness was further compounded by a surprise downward revision in third-quarter UK GDP, from 2.3% to 2.1%. In the following days the UK was beset by Storm Frank, which flooded several major UK towns and caused numerous power cuts. It is estimated that the damage could cost the UK economy £6 billion, cutting GDP by -0.2%. With the severe weather continuing, there is the threat of further problems.
The Japanese Yen is currently performing well against other major currencies, extending gains of 0.8% against the US Dollar (USD), 1.2% against the Euro (EUR) and 1.8% against Pound Sterling. There has been little data to support such a rise, apart from a minor increase in the Nikkei Japan PMI for Manufacturing, although 80% of executives in top Japanese companies believe that the economy will see a gradual uptick, starting in the second half of the year.
A bigger driver in the Yen’s performance today is the fact that other major currencies have suffered severe blows as a result of several important data releases. The Euro has lost some of its bullish gains after a shock drop in the rate of German inflation, the US has been surprised by a larger-than-expected contraction in the manufacturing sector and the UK has seen manufacturing output slow in December, all of which has allowed the Yen to shoot up.
There is plenty of data due out in the coming days to provide traders with more direction, including Services and Composite PMIs for both the UK and Japan. Today’s Asian session sees the release of money supply figures which will help to show whether the Bank of Japan’s (BoJ) current monetary policy is having the desired impact.
The GBP/JPY exchange rate is currently trending in the region of 175.2700, while the JPY/GBP exchange rate is trading in the region of 0.0057.