Ever since the Bank of Japan (BoJ) cut the interest rate to -0.1% in January, the currency has been in a fairly unstable position. As a case in point, with less than a week to go until the next BoJ interest rate decision, the Pound has steadily risen against the Yen today. During the week, the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate has risen from a low of 159.5788 to a high of 161.7534.
Sterling Movement Dictated by BoE Grilling This Week
The most notable source of movement for the Pound this week has been the questioning of Bank of England (BoE) Governor Mark Carney and Deputy Governor Jon Cunliffe, both of whom were giving MPs their opinion on what a ‘Brexit’ could mean for the UK.
The Pound fell overall on the discussion, which soon devolved into a witch hunt as Carney’s neutrality on the UK Referendum was called into question by his interrogators. The policymaker stuck to his guns, reiterating that a ‘Brexit’ is a major cause of uncertainty for the central bank, but only because the UK leaving the EU is an unprecedented situation to begin with.
Japanese Yen Movement Hindered by Long-Term Government Dissatisfaction with BoJ
The Japanese Yen’s movement this week has been somewhat lethargic, mainly due to disappointing domestic data compounding a tense situation regarding the BoJ’s interest rate decision. Since making the cut, the BoJ’s Governor Haruhiko Kuroda has been called before parliament over 20 times to explain his actions. Adding to this discontent has been the fact that loan growth reduced in February against rising deposits, occurrences that a negative interest rate is specifically meant to prevent.
Commenting on the increasingly-dubious policy measure, HSBC Securities Head of the Macroeconomic Strategy Group Shuji Shirota said: ‘We don’t even know if [a negative interest rate] will have an effect going forward’.
Future GBP/JPY Exchange Rate Forecast
For the remainder of this week Pound Sterling/Japanese Yen exchange rate movement may occur as a result of tomorrow’s UK trade balance and construction output results.
Looking further ahead, pairing movement next week may come from next week’s Budget Statement from Chancellor George Osborne, as well as the Bank of England (BoE) interest rate decision.
At the time of writing, forecasts were for an expansion of the trade deficit and a drop in construction output. With Osborne’s delivery, expectations have included a large-scale taxation overhaul which may stave off further budget cuts but is unlikely to appease those falling under the expanding shadow of the taxman. The UK interest rate is expected to remain at 0.50% for the foreseeable future.
On the Japanese side, movement may be generated by the coming Tuesday’s BoJ interest rate decision and monetary policy announcements, as well as Thursday’s planned remark from Kuroda at the Settlement System Forum.
Given the amount of flack the BoJ has received recently, it may be that the central bank elects to raise the interest rate on Tuesday, although most predictions have been for a freeze at -0.1%.
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