Pound to Japanese Yen (GBP/JPY) Exchange Rate News: Sterling Struggles to Capitalise on BoJ Dovishness

Pound Sterling to Japanese Yen (GBP/JPY) Exchange Rate Recovers Ground as BoJ Sounds Cautious Note on Inflation

There was little surprise that the Bank of Japan (BoJ) opted to leave monetary policy on hold at its June policy meeting, with negative interest rates stuck at -0.1%, thus allowing the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate to push sharply higher.

Demand for the Japanese Yen (JPY) declined as the BoJ took a slightly bleaker view on inflation in its latest policy statement.

This suggests that the central bank is unlikely to move away from its loose monetary policy in the months ahead, increasing its policy divergence with other major central banks and weighing heavily on JPY exchange rates.

However, the Yen was able to regain some of its lost ground over the course of Friday’s European session thanks to a fresh surge in global trade war fears.

As the Trump administration confirmed its intention to impose additional tariffs on China, investors were encouraged to pile back into safe-haven assets such as the Yen.

Rising UK Retail Sales Offer Limited Support to GBP/JPY Exchange Rate

Thursday’s stronger-than-expected UK retail sales data was unable to offer any particular support to the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate, meanwhile.

While sales excluding auto fuel saw a 4.4% surge on the year in May the underlying fundamentals of the sector remain somewhat concerning.

As a result, demand for Pound Sterling (GBP) remained relatively muted ahead of the weekend, even after reversing some of the previous day’s losses.

With a significant degree of uncertainty still surrounding the likely outcome of Brexit negotiations and the shape of the UK’s future relationship with the EU the upside potential of the Pound remains limited.

Signs of persistent disagreement on key matters within the Conservative government have given investors little cause for confidence in the outlook of GBP exchange rates.

GBP/JPY Exchange Rate Forecast to Strengthen on BoE Hawkishness

The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate could find a fresh rallying point in the week ahead as the Bank of England (BoE) holds its June policy meeting.

Although investors do not expect to see any change in policy next week this could still provoke significant volatility for GBP exchange rates.

As long as policymakers signal that an August interest rate hike remains on the cards this is likely to boost Pound Sterling against its rivals.

On the other hand, if the Monetary Policy Committee (MPC) takes a more cautious tone in the wake of disappointing inflation and wage growth data the Pound could see fresh losses.

Increased Risk Aversion to Weigh on Pound Sterling Japanese Yen (GBP/JPY) Exchange Rate

Global political developments are likely to drive additional volatility for the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate over the coming days.

If the trade dispute between the US and China intensifies further, or the US turns its attention back towards its allies, the appeal of the Yen is likely to pick up.

Even so, as forecasts point towards May’s Japanese trade balance falling into a state of deficit the strength of JPY exchange rates may prove a little more limited.

Another solid surplus, however, could see the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate extending its recent losses further.

Hannah Wilson

Contact Hannah Wilson