Possibility of BoJ Stimulus Tapering in 2018 Prompts GBP/JPY Losses
The Pound to Japanese Yen (GBP/JPY) exchange rate fell sharply this morning as investors continued to speculate regarding the Bank of Japan’s (BoJ) recent alteration to its bond purchasing scheme.
Tuesday’s news that the BoJ would be trimming its bond purchasing programme is being regarded by traders as proof the central bank is moving to tighten monetary policy.
At the time of writing, the interbank GBP/JPY exchange rate was down 1.09% from its starting levels, extending the currency pairing’s losses this week to around 2%.
Japanese Yen (JPY) Exchange Rates Lifted by BoJ Speculation
The Japanese Yen is skyrocketing against Sterling (GBP/JPY) as the Yen continues to feel the effects of the BoJ’s move to tweak its bond-buying programme on Tuesday.
The BoJ’s announcement that it would be trimming its purchases of long-term government bonds has prompted considerable speculation that the bank may be moving to tighten monetary policy.
Japan currently has one of the most accommodative monetary policies of any major economy as Governor Haruhiko Kuroda attempts to stoke inflation.
While the BoJ outwardly remains committed to its stimulus programme, investors suggest that the tweak amounts to ‘stealth tapering’, highlighting the current market sensitivity to central bank policy.
However with one of the BoJ’s key aims being to bring the Yen back under control, the latest jump in JPY could prompt the bank to adopt an even more dovish outlook going forward.
Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said:
‘The BOJ’s move reminded traders of the fact that major central banks are willing to normalise their monetary policy. ‘
‘I think this unwanted strengthening of the Yen will make the BoJ more cautious in going forward, when they want to move toward normalisation.’
Pound (GBP) Exchange Rates Weakened by Disappointing Trade Balance
Further pressuring the GBP/JPY exchange rate was the release of the UK’s latest trade balance as it revealed Britain’s trade deficit grew by more than expected in November.
According to data published by the Office for National Statistics (ONS) the UK’s trade deficit ballooned to £2.8bn last month, while October’s deficit was revised upwards from $1.4bn to £2.2bn.
The increase was largely driven by a jump in imports of fuel in preparation for winter.
However, helping to stem some of Sterling’s losses were the accompanying production figures, which revealed output across the UK rose faster than expected in November.
Particularly uplifting where the industrial and construction output figures, with both sectors outpacing forecasts and rising 0.4% against expectations of 0.3% and -1.1% respectively.
Some economists are hopeful the uptick in output will help bolster the UK economy in the fourth quarter.
Alan Clarke, an economist at Scotiabank, said:
‘UK GDP growth for the fourth quarter of 2017 is looking good again after some encouraging industrial and construction output data for November.’
‘These are the last concrete official monthly data that feed directly into the GDP arithmetic and give us the best clues to the likely growth rate when the data are released on 26 January.’
GBP/JPY Exchange Rate Forecast: Davis and Hammond to Make Brexit Plea
Looking ahead, the GBP/JPY exchange rate is likely to be impacted by UK Chancellor Philip Hammond and Brexit secretary David Davis’s visit to Berlin as they appeal to German business leaders to agree upon a ‘bespoke’ Brexit deal with the UK to help secure Britain’s financial services sector.
Meanwhile, the Japanese Yen may find itself trending higher again on Thursday as economists forecast Japan’s Coincident Index will have strengthened in November.