Pound to Japanese Yen Exchange Rate Plummets after Worrying CBI Forecasts

Pound Sterling (GBP) Exchange Rates Give Up Earlier Gains

The Pound to Yen exchange rate (GBP/JPY) has fallen by -0.9% today, with Sterling posting additional losses against the US Dollar and New Zealand Dollar.

This deterioration in GBP is down to recent Confederation of British Industry (CBI) statistics, which have presented a mixed picture of UK factory performance.

On the plus side, the CBI business optimism index showed a rise from -11 points to 13, but the industrial orders index has dropped from 17 points to 14.

The most alarming stat was the CBI expected price balance figure, which saw an increase from 23 to 40 points.

This is the highest level since 1984 and signifies that factory selling prices may be about to rise sharply, increasing pressure on inflation levels and UK consumers.

Narrowing of UK Borrowing Deficit Fails to Boost GBP/JPY Exchange Rate

Away from the CBI stats, there has been good UK news in the form of a sharp reduction of the public sector borrowing deficit.

The revised £-6.65bn deficit for November fell to £-0.98bn in December.

The surprise result was attributed to a rebate from the EU, along with high value VAT receipts.

Offering a cautious forecast based on the data, BBC Business Correspondent Jonty Bloom said;

‘For the next two months the government will have more money coming in than it needs and so borrowing for [2018] will almost certainly be lower than £50bn.

But the government’s borrowing problems are not over.

Growth and productivity for the next few years are now predicted to be worse than previously thought, meaning balancing the books is going to take longer’.

Japanese Yen Surges on BoJ Outlook Upgrade

The GBP/JPY exchange rate has also fallen as the Yen was supported by the first Bank of Japan (BoJ) interest rate decision of 2018.

The BoJ left interest rates at -0.10% in January and didn’t change its monetary policy plans, but some economists believe that global events could force the bank’s hand.

Hiroaki Muto, economist at the Tokai Tokyo Research Center, has predicted that;

‘If [interest] rates are rising in the United States and Japan’s economy is doing well, there will be some upward pressure on rates. It would be impossible to contain this.

The BoJ is on hold for the first half of this year but could start to shift gear in the second half of this year’.

The BoJ has historically been cautious, but any signs of growing confidence about the economy could mean a long-awaited interest rate hike is on the way.

Pound to Yen (GBP/JPY) Exchange Rate Volatility ahead on UK Wage Growth Stats

The next UK economic data to watch out for will come on 24th January, when UK average earnings for November are revealed.

If wage growth rises, the Pound could advance on its rivals.

On the other hand, a surprise slowdown in the pace of earnings growth would negate the effect of the latest inflation rate dip, lowering confidence in GBP.

Meanwhile, Japan’s inflation figures for December will be out on 25th January.

Year-on-year inflation is predicted to have risen from 0.6% to 1.1%, which may lead to a JPY/GBP exchange rate rise.

The BoJ has long been trying to raise national inflation, so such a substantial increase could raise hopes of a monetary policy shift in 2018.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron