Pound Japanese Yen (GBP/JPY) Strengthens as UK Retail Sales Beat Forecasts

Pound Japanese Yen (GBP/JPY) Rises as UK Retail Sales Return to Growth

The Pound Japanese Yen (GBP/JPY) exchange rate is strengthening this morning, as UK retail sales outpaced forecasts in October.

At the time of writing, GBP/JPY is trading at around ¥166.8830, a rise of roughly 0.2% from the morning’s opening rates.

Pound (GBP) Solidifies as UK Retail Begins Modest Recovery

The Pound (GBP) is strengthening this morning, after UK retail data showed a recovery in sales figures and consumer confidence.

While sales are still below pre-pandemic levels, the uptick from a revised -1.5% to 0.6% exceeded forecasts of a 0.3% increase. As such, Sterling enjoyed support from investors as the retail sector shows some signs of life despite the recession.

Despite the positivity, it seems likely that the sales data was a rebound effect following a particularly weak September. Darren Morgan, the ONS Director of Economic Statistics explained this further. He stated:

‘Retail sales increased in October, although this is likely a rebound effect after weak sales last month as many retailers closed or operated different on the extra bank holiday for the Queen’s funeral. Looking at the broader picture, retail sales continue their downward trend seen since summer 2021.’

As such, the Pound’s gains may be capped by a bleak economic outlook. Alongside yesterday’s Autumn Statement came official confirmation the UK is in a recession. The Office for Budget Responsibility (OBR) forecast a year long recession and expects UK living standards to fall.

Japanese Yen (JPY) Mixed as CPI Comes in Hot

The Japanese Yen (JPY) is seeing mixed trade this morning, as core CPI printed higher than expected. Inflation rose to 3.6% in October, from 3% in September and above a forecast of 3.5%.

While still lower than other CPI levels as seen in the UK or the US, it remains a 40-year high for Japan. The Bank of Japan (BoJ) remains dovish, with their intention to protect the Japanese economy from further weakness.

BoJ Governor Haruhiko Kuroda stated:

‘I’m not saying the BoJ cannot raise rates indefinitely. I’m saying that it’s inappropriate to raise rates now, in light of current economic and price developments.’

The attitude comes from Japanese businesses holding a deflationary attitude, opting to swallow the costs to keep customers. However, with inflation continuing to increase, the attitude is beginning to shift, but the intention remains to protect wage growth.

Pound Japanese Yen (GBP/JPY) Exchange Rate Forecast: BoE Fiscal Reaction to Boost Sterling?

Looking ahead, the Pound Japanese Yen exchange rate could strengthen further, following a speech from Jonathan Haskell, a member of the Bank of England’s (BoE) Monetary Policy Committee (MPC).

Haskell is expected to focus on fiscal policy, and a reaction to the Autumn Statement. Any further indication of the BoE’s intentions could buoy GBP.

For JPY, any further information from the BoJ may continue the Yen’s mixed trade. However, a shift to a more risk-adverse mood may prompt the Yen to rally.

John Mulcahey

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