Over the past seven days, the Pound Sterling to Japanese Yen exchange rate was trending within the range of 170.2232 to 174.8797.
The shock decision from the Bank of Japan (BoJ) to cut the overnight cash rate into negative territory last week continues to impact the Yen. With central bank officials reiterating the potential to expand monetary stimulus, the Yen had seen a massive decline in demand. Also fuelling the depreciation was the decision from Economy Minister Akira Amari to resign following a well-publicised political scandal.
Meanwhile, the British Pound has suffered significant price swings over the past week thanks to a combination of mixed domestic data results and uncertainty regarding the forthcoming EU referendum. In general, however, Sterling has struggled amid concerns that persistently low inflation will cause the central bank to delay a cash rate increase for a considerable time to come.
On Thursday, the Pound Sterling to Japanese Yen exchange rate dived as traders readjusted Yen positions. Whilst the move into negative rates was certainly a good reason for Yen depreciation, it seems the shock made traders overreact and consequently have to readjust positions. The slow appreciation came even after safe-haven demand cooled significantly with global stock values making massive gains. News that BoJ board members were unaware of the central bank’s controversial move into negative rates could have a longer-term detrimental impact on investor confidence, however.
The GBP/JPY depreciation was also aided by a particularly disappointing ‘Super Thursday’ which saw Bank of England (BoE) policymakers hold interest rates as had been predicted. However, most traders were surprised to see all nine Monetary Policy Committee (MPC) members unanimously vote to hold rates, a change from the 8-1 split seen in several prior rate decisions. In addition to holding rates, the central bank cut growth forecasts and stated that inflation is expected to remain below target for at least two years.
Looking ahead, there will be several influential data publications over the coming week with potential to provoke GBP/JPY changes. For those trading with the Yen, Sunday’s Current Account and Bank Lending data will be of interest. Also, Monday’s Average Cash Earnings, Current Eco Watchers Survey and Eco Watchers Survey Outlook could all prove influential.
In terms of British data: Trade Balance, Industrial Production, Manufacturing Production, the NIESR GDP Estimate, RICS House Price Balance and Construction Output should all cause GBP changes.