The Pound to Japanese Yen exchange rate has softened since markets opened on Monday, but with investors hesitant to let the Japanese Yen strengthen much further the pair has remained above the key level of 135.00. GBP/JPY was trending in the region of 135.6500 on Tuesday morning.
Pound (GBP) Weakens as Inflation Stats Disappoint
Sterling has struggled to hold its ground since markets reopened after the weekend. While the currency was able to advance against many rivals on Monday, it did so on last week’s optimistic PMI results and amid expectations that inflation could spike in August.
However, when Britain’s August Consumer Price Index (CPI) report was published on Tuesday morning, the results did little to inspire Pound investors as hopes of a further post-Brexit rebound faded.
August’s monthly inflation scores improved from -0.1% to 0.3%, failing to reach the projected 0.4%. The yearly score remained at 0.6%, despite hopes of an improvement to 0.7%.
Analysts had been speculating that the low value of the Pound since June’s Brexit vote could cause a surge in inflation as producers pay more for imports, eventually leading to higher consumer prices.
The published figures instead suggested that producer prices had not yet translated to consumer prices, with analysts speculating that real change could not be seen for some months.
Japanese Yen (JPY) Fluctuates on Shifting Risk Appetite
The ‘safe-haven’ Japanese Yen has seen strong surges of activity in the last few weeks, due to ups and downs in risk sentiment.
As markets frantically adjust bets on the possibility of a Federal Reserve rate hike in September (or December), demand for safe-haven assets like the Japanese Yen has likewise shifted.
As the US Dollar weakens, the Yen rises, and vice versa. However, as Japanese businesses and governments have commonly warned against an overvalued Yen, markets are hesitant to buy into the currency after a point.
This is why, despite optimistic figures from BSI Large on Tuesday, the Japanese Yen has fluctuated below its best levels – with investors selling it off before it can become too overvalued.
GBP/JPY Exchange Rate Forecast: Bank of England Meeting Ahead
The Pound to Yen exchange rate could continue fluctuating throughout Tuesday and Wednesday depending on the results of Japan’s final July production figures, as well as Britain’s August jobless claims scores.
Wednesday will also see the publication of Britain’s May to July unemployment scores, which could boost the Pound if they beat expectations. However, GBP/JPY’s main movement of the week will likely take place on Thursday.
Thursday’s Japanese economic calendar is relatively quiet, but it will be a big day for Sterling as the Bank of England (BoE) holds its September monetary policy meeting.
Following August’s aggressive BoE stimulus measures, speculation has been rife on if (or when) the BoE will expand monetary policy further and stave off potential Brexit damage.
As August’s PMI scores came in above expectations, some investors may be hoping for a more hawkish stance from the Bank. However, hints at further policy stimulus down the line could undermine Sterling and easily cause GBP/JPY to fall below key levels.