Pound Japanese Yen Exchange Rate Jumps Following BoE Interest Rate Hike

(Updated 16:45 16/12/21)

The Pound Japenese Yen (GBP/JPY) saw a spike today following the Bank of England’s (BoE) surprise decision to raise interest rates to 0.25%, as the rate reached its highest point since November. After the shock in the markets dissipated however, the currency pairing trended downward as confidence in Sterling and the BoE’s decision waned.

At time of writing the GBP/JPY exchange rate is at around ¥151.4680.

Pound Japanese Yen (GBP/JPY) Exchange Rate Boosted by Yen ahead of BoE Interest Rate Decision

The Pound Japanese Yen (GBP/JPY) exchange rate has risen to its highest point in two weeks today, as a weakened Yen has helped boost the currency pairing.

At time of writing the GBP/JPY exchange rate is at around ¥151.5900, which is up 0.2% from this morning’s figures.

Pound (GBP) Cautious Ahead of BoE Meeting

The Pound is trending in a narrow range against its rivals today as investors eagerly await the Bank of England’s interest rate decision later today, although disappointing PMI figures have since caused a slight dip in Sterling.

Market expectations of a rate rise by the BoE have swung wildly in recent weeks, with above-forecast inflation data offset by the impact of the Omicron variant.

Markets have priced in a 60% chance of a rate rise, although analysts feel that the BoE is likely to hold off until the impact of the Omicron variant can be properly scrutinised.

Ellie Henderson, economist at bank Investec, feels that there is potential for the decision to go either way:

‘The Monetary Policy Committee has a difficult decision to make. There is now the real risk of inflation becoming entrenched – especially considering the signs of second-round effects in terms of rising wages, supported by a strong labour market – but this is balanced against the threat to the economic recovery from the new Omicron variant.’

The Bank of England may have further cause to ponder a rate hike after Flash PMIs for December showed a slowdown of growth across all private sectors in the UK. The services sector was the hardest hit with the index falling from 58.5 to 53.2 in December, well below forecasts of 57, as travel and hospitality companies bared the brunt of Omicron-related uncertainty.

Japanese Yen (JPY) Falls as Private Sector Growth Slows

The Japanese Yen has dipped against its rivals this morning as figures showed a slowdown in the country’s manufacturing and services sector. The safe-haven currency may also be facing pressure from a risk-on trading mood.

Whilst manufacturing activity expanded for an eleventh consecutive month in December, the rate of expansion fell to 54.2 under forecasts of 54.6. Higher material costs and shortages at suppliers had the biggest impact, and the knock-on effect of fewer new orders. Growth in the services sector also slowed as businesses continue to recover from the impact of Covid-19. Figures also indicated a fall in business confidence for 2022.

The Yen may also have been pushed downward by recent balance of trade data which showed a record jump in imports, rising by 43.8% year-on-year. Exports however climbed for a ninth consecutive month by 20.5%.

Masato Koike, senior economist at Dai-ichi Life Research Institute, had the following analysis concerning rising imports and a weakened yen:

‘While the weak yen has certain benefits such as boosting exporters’ competitiveness and inbound tourists’ spending, more Japanese manufacturers have shifted production bases offshore and COVID-19 border controls shut out tourists now,” said Masato Koike, senior economist at Dai-ichi Life Research Institute.

Rising costs are weighing on Japan when a weak yen has less impact on increasing sales of goods and services.’

GBP/JPY Forecast: Will BoE Surprise Investors Again?

All eyes will be on the BoE’s interest rate decision later today. If a rate hike is announced then Sterling is likely to soar.

Leaving rates unchanged may cause a fall in Sterling, although hawkish forward guidance from the BoE could offset this. Retail sales data for November is forecast to meet the 0.8% growth from October, which could push Sterling down if investors see this a sign of falling consumer confidence.

Friday brings the interest rate decision for the Bank of Japan (BOJ), although this is expected to remain unchanged as analysts predict a decision in January or March 2022.

The central bank was expected to announce an end to its stimulus programme at Friday’s meeting, although concerns over the economic impact of the Omicron variant may push that decision into 2022. The Yen is likely to be pushed further down should the BOJ take this course of action.

Gareth Monk

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