The GBP/JPY exchange rate has trended between lows of 164.0680 and highs of 171.1056 over the last week.
On Thursday the Bank of England (BoE) left interest rates on hold at 0.50% and the Asset Purchase Target at £375 billion. The move was widely anticipated by the markets and Pound Sterling resisted weakness thanks to the hawkish actions of policymaker Ian McCafferty. The only member of the Monetary Policy Committee (MPC) to have voted for an interest rate increase during any of the previous five meetings once again favoured a 0.25% rise in the benchmark rate. This was seen as a positive sign as investors were worried that the worsening global conditions would have softened his outlook on the ability of the UK economy to withstand greater interest rates.
Foreign buyers flocked back to Japan’s bond market as the continued trouble in China saw investors looking for safer assets. Yields on government bonds dropped to 0.19%, showing that bond prices were on the rise as investor confidence in the government’s financial stability increased. International ownership of Japanese government bonds is currently at a record level, accounting for nearly 10% of the market after a 16.5% year-on-year (YoY) increase to 102 trillion Yen (£610 billion) at the end of September.
The GBP/JPY exchange rate was sent tumbling yesterday after a short period of strong gains following comments from Bank of England (BoE) Governor Mark Carney. The head of the BoE claimed that raising interest rates would be a bad idea in the current economic climate, pointing to problems in China, a continued slump in the price of oil and slow conditions in the UK economy. The markets currently predict the UK will not see a rate hike until 2017.
The Yen has been able to register advances today, partly thanks to its position as a safe haven asset. Oil has caused another global stock sell-off, with the FTSE currently down -3.1% and the Japan’s Nikkei index closed with losses of -3.7%. Investors are turning away from the volatile markets and looking instead to safer options like the Japanese Yen. Pound Sterling is starting to erode the Yen’s gains, however, as labour market data shows UK employment levels are at historical highs.
Tomorrow sees the release of Japan’s All Industry Activity Index, which shows the aggregate progress made by every sector in the Japanese economy, combining data from the service, manufacturing and construction industries and the public sector. The index is forecast to show that activity fell -0.8% month-on-month (MoM) in November, which would harm the Yen.
The only data for the UK is the RICS House Price Balance, which shows how many surveyors predict that housing prices will increase. The index printed at 49% previously, which shows the net balance of surveyors who predict a price increase. The index is anticipated to increase to 50%, which means that the overwhelming majority of surveyors are expecting housing prices to rise. This could harm the Pound as it will add to fears that the UK is currently in the grips of a housing bubble.