Pound Japanese Yen (GBP/JPY) Exchange Rate Gains Despite Fears of UK Recession

(Updated 16:35 19/05/22)

The Pound Japanese Yen (GBP/JPY) exchange rate continued to climb today despite a risk-off market mood. Bets on the Yen may have remained limited ahead of key inflation figures on Friday and boosted the currency pair. Continued expectations of a rate hike from the Bank of England (BoE) may have also help bolster GBP/JPY.

At time of writing the GBP/JPY exchange rate is at around ¥159.2320, which is up nearly 0.8% from this morning’s opening figures.

Pound Japanese Yen (GBP/JPY) Exchange Rate Climbs amid Risk-Off Trading

The Pound Japanese Yen (GBP/JPY) exchange rate is making gains today. A weakened Japanese Yen (JPY) may be helping the currency pair to climb after the country’s deficit widened further. A risk-off trading sentiment may also be helping GBP/JPY to edge higher today.

At time of writing the GBP/JPY exchange rate is at around ¥158.4290, which is up roughly 0.3% from this morning’s opening figures.

Pound (GBP) Gains Despite Recession Fears

The Pound (GBP) is trending higher. A risk-off trading sentiment is helping to bolster the currency against many of its rivals today.

Gains for Sterling come in the face of renewed recession fears after inflation hit a 40-year high yesterday. April’s rate of inflation reached 9% as energy, fuel, and grocery bills all soared. The figures now mean that the UK has the highest rate of inflation amongst the G7 nations.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said:

‘The scale at which inflation is damaging key drivers of UK output, including consumer spending and business investment, is unprecedented and means there is a real chance the UK will be in recession by the third quarter of the year.’

UK Chancellor Rishi Sunak is facing renewed pressure to provide additional support to UK households and businesses. Speaking on Wednesday, Sunak pledged to cut taxes for businesses in his Autumn budget. Critics say the move will come too late to help those struggling now.

Significant gains for GBP may be limited by ongoing tensions over the Northern Ireland Protocol this week. Threats from UK Foreign Secretary Liz Truss to ‘tear up’ parts of the agreement have been supported by the tabling of legislation potentially enabling to the UK government to do so.

The move has come under widespread criticism from officials both at home and abroad. Ireland’s Deputy Prime Minister Leo Varadkar said that the UK was ‘breeding mistrust in EU capitals’. One EU diplomat told news outlets that the action was ‘neither necessary nor desirable’.

Japanese Yen (JPY) Dips as Trade Deficit Widens

The Japanese Yen (JPY) is struggling today despite a risk-off market mood. The currency is likely being kept under pressure after rising import levels saw Japan’s balance of trade widen further. Soaring energy costs and a weak Yen against the US Dollar (USD) were highlighted as possible causes.

The country’s balance of trade has fluctuated greatly in recent months due to global supply chain issues, as well as issues arising from the Covid-19 pandemic. Lockdowns in China have also hampered the strength of Japan’s exports.

Takeshi Minami, chief economist at Norinchukin Research Institute, said:

‘Import gains caused by rising crude oil prices and a weak yen mean a transfer of national wealth to oil-producing nations, depriving Japan of purchasing power.’

JPY is also likely remaining weakened after figures yesterday indicated a contraction to the Japanese economy. Growth in the first quarter of 2022 printed at -1.0% amid Covid-19 restrictions and a surge in commodity prices.

GBP/JPY Exchange Rate Forecast: Will Japanese Inflation Continue to Climb?

Looking ahead for the Pound (GBP), May’s distributive trades figures could bolster the currency further should they rise as forecast later today. On the other hand, a drop to retail sales in April could limit any gains for Sterling on Friday.

Hotly anticipated Japanese inflation figures will be the main focus for Japanese Yen (JPY) investors on Friday. If the rate climbs higher as forecast then it could further weaken confidence in the beleaguered Yen.

Gareth Monk

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