GBP/JPY Exchange Rate Rangebound, Japanese Economy Struggles to Recover
The Pound Japanese Yen (GBP/JPY) exchange rate held steady this morning, with the pairing currently trading around ¥139.965 following the release of Japan’s Jibun Bank Manufacturing PMI for October which fell for its sixth consecutive month from 48.5 to 48.4.
Joe Hayes, an Economist at IHS Markit, was downbeat in his assessment, saying:
‘Downside risks to Japan’s manufacturing economy are clearly excessive. With weak regional growth across Asia and signs of fragility within the domestic economy, it is difficult to see any respite coming in the near-term.’
With Japan’s fragile economy continuing to concern the Bank of Japan (BoJ), the JPY/GBP exchange rate has remained subdued.
On Thursday, BoJ Governor Haruhiko Kuroda warned that Japan’s central bank could cut interest rates in the near future:
‘The chance of the economy losing momentum to hit our price [inflation] target hasn’t escalated. But we need to scrutinize developments as overseas uncertainties are heightening. It’s still possible for the BoJ to deepen negative rates.’
If the US and China secure a “phase 1” trade deal this month we could see the Japanese Yen improve as this would benefit the trade-sensitive Japanese economy and buoy market confidence in the Yen.
GBP/JPY Exchange Rate Steady, UK Manufacturing Remains in Contraction Territory
The Pound (GBP) failed to gain on the Japanese Yen (JPY) after the UK Manufacturing PMI for October beat forecasts and rose from 48.3 to 49.6, leaving Sterling unmoved as markets focus on the upcoming December general election.
Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, commented:
‘Business was still restrained by the Brexit leash, as firms were subjected to the struggle against client indecision and also the down pull of a slowing global economy.’
UK political developments remain in focus today after US President Donald Trump promoted co-operation between the Brexit Party and the Conservative Government ahead of the upcoming December 12 general election.
However, Mr Trump also ruled out the possibility of a US-UK trade deal due to “certain aspects” of Boris Johnson’s current deal with the European Union, leaving Sterling traders jittery on heightened Brexit uncertainty.
GBP/JPY Outlook: Could Sterling Sink on October’s Weak Construction Data?
Pound (GBP) investors will be looking ahead to Monday’s UK Markit Construction PMI for October, which is expected to remain mired in contraction territory at 44.
However, with Brexit delayed and an increasingly polarised election campaign due to begin in earnest next Wednesday, we could see the GBP/JPY hold steady until then.
Meanwhile, Japanese Yen (JPY) traders will turn their focus on Thursday’s monetary policy meeting minutes from the Bank of Japan. Any further indication that the central bank intends to go ahead with a near-term rate cut could weaken the JPY/GBP exchange rate.