Pound Japanese Yen (GBP/JPY) Exchange Rate Weakens as UK Fiscal Black Hole Deepens

Pound Japanese Yen (GBP/JPY) Softens amid Bleak UK Economic Forecast

The Pound Japanese Yen (GBP/JPY) exchange rate is sliding today as PM Sunak prepares tax raises to combat soaring public debt.

At time of writing, the GBP/JPY exchange rate is around ¥170.0520, a 0.30% drop from this morning’s opening levels.

Pound (GBP) Undermined by Surging National Debt

The Pound (GBP) is struggling for demand this morning as Prime Minister Rishi Sunak is set to announce tax raises to plug the £50bn fiscal gap left by Liz Truss’ disastrous mini-budget.

With the fallout from the disastrous mini-budget still being felt, tax hikes are expected across the board. The upcoming autumn statement has been delayed until November 17 from its original October 31 date. ‘Stealth’ raises in income tax and national insurance are expected to be put into place over the next few years. However, concerns are growing of further spending cuts on public services. A Treasury source said:

‘The truth is that everybody will need to contribute more in tax if we are to maintain public services.

‘After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bills support, we won’t be able to fill the fiscal black hole through spending cuts alone.’

Meanwhile, October’s manufacturing PMI fell to 46.2 from 48.4, showing output contracted once again. A fourth consecutive month of weakening activity also showed a sharp drop in new orders, falling at the fastest pace since May 2020. Inflationary pressures may have eased somewhat, but still remain elevated as the manufacturing PMI fell to a 29-month low.

Japanese Yen (JPY) Fluctuates on Hopes of Further Market Intervention

Meanwhile, the Japanese Yen (JPY) is also trading erratically as Japanese Finance Minister Shunichi Suzuki announced today that they are closely watching the market with a sense of urgency. If further excessive fluctuations were to happen, Suzuki confirmed the government will intervene. In October alone, Suzuki confirmed that Japan has spent $42.7bn (¥6.35tn) on currency intervention to assist the flagging yen.

Meanwhile, manufacturing PMI printed at 50.7, down slightly from September’s 50.8. Despite avoiding a contraction, this was the softest pace in factory activity since January 2021. Which was also the last time the sector saw a contraction. With worsening conditions in both China and South Korea, export sales fell for the eighth consecutive month.

Pound Japanese Yen Exchange Rate Forecast: Hawkish BoE to Boost Sterling?

Looking ahead, the Pound Japanese Yen exchange rate could see further movement with the announcement of the Bank of England’s (BoE) rate decision. If the central bank opts for another 75bps rate hike, the Pound could climb.

Meanwhile, any further commentary on Japan’s foray into the markets could see the Yen fluctuate further.

Danny Tingle

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