GBP/JPY Forecast: Slowing UK Inflation Triggers Pound to Japanese Yen Exchange Rate Dip

Pound Japanese Yen Exchange Rate on Back Foot

The Pound lost ground to the Japanese Yen today, with the GBP/JPY exchange rate falling to 152.26 on slowing UK inflation rates.

In December of 2017, UK inflation slowed year-on-year, from 3.1% to 3% for the base figure and from 2.7% to 2.5% for the core statistic.

Traders have responded negatively to the figures as it means a reduced likelihood of a Bank of England (BoE) interest rate hike, even if it is good news for consumers.

The BoE’s inflation target is 2%, but even though inflation is exceeding this range, the bank is reluctant to increase rates because of slow UK wage growth and high household debt.

BoE Policymaker Tenreyro Warns of UK Productivity Problems

Another factor limiting Pound to Yen demand was a recent speech from Bank of England (BoE) policymaker Silvana Tenreyro, who highlighted UK productivity issues.

Tenreyro has warned about UK economic growth falling behind international rivals. She said:

‘The UK productivity level is below that of other advanced economies. The big question is the timing for that catch-up.

The global economy and Europe in particular are undergoing a big investment boom, yet the UK is not part of it.’

Economists have long struggled with the UK ‘productivity puzzle’, whereby unemployment is low, but there is also low output per hour and a glacial pace of wage growth.

Japanese Yen to Pound Exchange Rate Tight after BoJ Bond-Buying Jitters

The Japanese Yen has traded in a narrow range against the Pound today, owing to uncertainty about future Bank of Japan (BoJ) monetary policy.

The primary issue is with the BoJ’s bond-buying policies, known as quantitative easing (QE).

The BoJ has long been buying up bonds and assets to try and stimulate the Japanese economy, with inflation remaining stubbornly low since mid-2015.

The latest update sees reports that the BoJ has slightly reduced the quantity of long-term bonds purchased, which has fuelled speculation about a possible reduction of QE.

The BoJ has historically been cautious with policy adjustments, so this news is no guarantee of a sudden shift towards tighter monetary policy.

Pound to Yen Exchange Rate Forecast: GBP/JPY Advance Possible on Retail Sales Growth

Looking ahead, the Pound to Japanese Yen exchange rate could rise on 19 January, if UK retail sales figures rise as forecast.

Economists forecast a rise in year-on-year sales in December, which would close off 2017’s sales stats on a strong footing.

The next significant Japanese news won’t come out until 23 January, when the BoJ will make its first interest rate decision of the year.

The bank is on track to leave interest rates at -0.1%, but a rise in the Yen could occur if its quarterly outlook report is sufficiently optimistic.

Laura Parsons

Laura has been working in the financial services sector since 2012 and provides currency news updates for a number of online and print publications. Over the years she has produced exchange rate analysis for publishers like French Property News, The Express, The Telegraph and Forbes.

Contact Laura Parsons