Pound Japanese Yen (GBP/JPY) Exchange Rate Surges as UK Chancellor Brings Forward Fiscal Plans

Pound Japanese Yen Exchange Rate Rallies Despite UK Political Uncertainty

The Pound Japanese Yen (GBP/JPY) exchange rate is strengthening this morning ahead of expected fiscal U-turns.

At time of writing the GBP/JPY exchange rate is trading around ¥167.8530, a 0.94% jump from this morning’s opening levels.

Pound (GBP) Rallies on Imminent Spending and Tax Plans

The Pound (GBP) is enjoying renewed demand ahead of the newly-appointed Chancellor Jeremy Hunt’s fiscal announcements.

Hunt, who replaced Kwasi Kwarteng on Friday, is hoping to calm jittery markets today. This morning, Hunt announced he is bringing forward the fiscal plans by two weeks. Amid market turbulence, investors are hoping that the government’s revised tax and spending plans will reassure them of the UK’s financial stability. A statement to parliament is planned from the new Chancellor this morning, bringing forward the medium-term fiscal plan. A series of U-turns are expected on the disastrous mini-budget that saw Kwarteng last only 36 days as Chancellor.

Political uncertainty continues to weigh on the Pound and could limit the gains of the expected climbdown. Investors are still unconvinced, along with many Tory backbenchers themselves, on Prime Minister Liz Truss’ government. Speculation grows of more than 100 letters of no-confidence having been submitted to Sir Graham Brady, chairman of the 1922 Committee.

Elsewhere, the Bank of England (BoE) Governor Andrew Bailey met with Hunt over the weekend to discuss the government’s plans going forward. Encouraging remarks from Bailey helped ease investors’ fears and provided modest support to Sterling. Bailey also hinted at a big interest rate rise next month, and added:

‘I can tell you that there was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that.’

Japanese Yen (JPY) Under Pressure Despite Potential Government Intervention

Meanwhile, the Japanese Yen remains undermined by dovish Bank of Japan (BOJ), prompting comments from Japanese officials.

Amid further divergence from almost all central banks, the BOJ continues its dovish stance, sapping demand. With inflationary pressures set to drop to 2%, according to the central bank, BOJ Governor Haruhiko Kuroda said that it is ‘appropriate to continue monetary easing’.

However, with the continued slide of the Yen, many investors are hoping of intervention to stem the losses. Japanese Chief Cabinet Secretary Hirokazu Matsuno said:

‘We are closely watching FX moves with a high sense of emergency and will take appropriate steps on excess FX moves.’

Top Japanese officials, including the Prime Minister, have stated that they are prepared to take the necessary steps to avoid further slides. A timely intervention could boost investors’ spirits, and in turn the Yen. 

Pound Japanese Yen Forecast: Hunt’s Statement to Rally the Pound?

Looking ahead and the Pound Japanese Yen exchange rate could see further movement as the new Chancellor addresses parliament. With the medium-term fiscal plans being brought forward, Hunt could allay investors’ fears in the UK’s economic stability.

Meanwhile, further comments around intervening in the Japanese economy could spur the Japanese Yen. However, a persistent dovish BOJ is likely to limit gains.

Danny Tingle

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