GBP/JPY Forecast: How will BoE Interest Rate Outlook Impact the Pound to Japanese Yen Exchange Rate?

Pound Sterling (GBP) Edges Lower vs Japanese Yen after BoE Interest Rate Decision

The Pound to Japanese Yen (GBP/JPY) exchange rate edged lower following the Bank of England (BoE) interest rate decision.

The BoE left interest rates at 0.50% as predicted, but policymakers remained cautious because of Brexit developments.

Most economists believe that the BoE won’t consider higher interest rates until the second half of 2018; Kallum Pickering of Berenberg Bank has said;

‘We did not expect another policy change today at the BoE’s December Monetary Policy Committee (MPC) meeting.

Instead, we were looking for clues for when the BoE would hike next; unfortunately, the MPC did not offer much.

Our call [is] that the next hike will not come until the second quarter of 2018, some six months away.

Expect stronger guidance on rate hikes at the February 2018 Inflation Report when the BoE will also update its economic forecasts’.

Pound Sterling (GBP) Exchange Rate Boost Following Jump in UK Retail Sales Fails to Last

While the BoE meeting was a bit of a damp squib, Pound Sterling (GBP) exchange rates did briefly gain in reaction to impressive UK retail sales figures for November.

Sales rose by over 1.0% on the month and the year, smashing predictions.

However, while the headline figure was impressive, Pantheon Macroeconomics Chief UK Economist Samuel Tombs said;

‘The surge in retail sales in November does not signal broader consumer strength.

[These sales] merely reflected people bringing forward purchases that they otherwise would have made in December or January, due to discounts’.

Surging Japanese Factory Activity Leaves GBP/JPY Exchange Rate Static

The GBP/JPY exchange rate has also struggled to hold gains due to the Japanese Yen finding support in recent manufacturing data for Japan.

The manufacturing PMI flash for December rose to the highest level in four years.

Additionally, finalised industrial production readings for October showed 0.5% growth on the month, while the annual reading printed higher at 5.9%.

Joe Hayes of IHS Markit said;

‘With Q3 GDP growth recently revised higher, [the] latest PMI data signalled further positivity for the Japanese economy in the final month of 2017.

Recent Yen weakness appeared to benefit exporters, with new orders from abroad rising strongly’.

Will the Pound Japanese Yen Exchange Rate Jump on BoE Bulletin?

While the EU Brexit summit may end up dominating headlines before the weekend, the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate could also react to tomorrow’s BoE bulletin.

Any hints at the BoE’s policy plans for 2018 would be Sterling-supportive.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon