Pound Japanese Yen (GBP/JPY) Exchange Rate Narrows as Japanese CPI Hits Multi Decade High

Pound Japanese Yen (GBP/JPY) Exchange Rate Rangebound as Japanese Inflation Hits 40 Year High

The Pound Japanese Yen (GBP/JPY) exchange rate is narrowing this morning, as Japanese CPI hits a 40 year high.

At the time of writing, GBP/JPY is trading at around ¥160.6330, showing little movement from the morning’s opening rates.

Japanese Yen (JPY) Struggles as CPI Hits 40 Year High

The Japanese Yen (JPY) is ticking downward this morning, after the latest CPI data showed another increase.

Currently, the Bank of Japan (BoJ) preferring a dovish, ultra-loose monetary policy in favour of protecting wage growth. However, the latest data runs in contrast to this approach, and could lead to the BoJ changing tact.

Mari Iwashita, Chief Market Economist at Daiwa Securities, explained this further. She stated:

‘It’s clear Japan’s inflation is perking up as a trend. The economy’s output gap will also likely to turn positive soon. All in all, we’re seeing more data that will give the BOJ reason to eventually normalise monetary policy.’

However, inflation is likely to continue taking a toll on the Japanese economy. While the BoJ introduced a stimulus package to assist households, it may not have an impact until January.

Pound (GBP) Stutters as UK Businesses Show Energy Concerns

The Pound (GBP) is struggling for support this morning, as UK businesses react to a new discount package unveiled by the government.

UK businesses are arguing that the new package for energy support doesn’t go far enough to protect them from rising prices. The package changes the current fixed cap on energy costs to a reduction on wholesale prices for a year.

Gareth Stace, Director General of UK Steel, explains that this will leave UK firms at a disadvantage against competitors. He stated:

‘In contrast, the reformed EBDS provides a discount for electricity prices above £185/MWh, leaving UK steel producers paying an estimated 63% more for power than German steel producers this year. This situation will maintain a long-standing competitive disadvantage for UK producers.’

As such, investors are remaining conscious of the UK’s current economic struggles. With the outlook remaining bleak, sentiment towards Sterling appears to be waning.

Pound Japanese Yen (GBP/JPY) Exchange Rate Forecast: BoJ Reaction in Focus

Looking ahead for the Yen, Wednesday brings the release of Japan’s current account balance for November. The country’s trade deficit is forecast to widen significantly, as inflation dampens economic momentum.

With this in mind, and after today’s increase in inflation, this could bolster the Yen. While sombre news for the Japanese economy, it may point to a need for a change in monetary policy from the BoJ.

For the Pound, data is thin on the ground in the short term. As such, domestic news may dominate investors attention. Later today, the UK government is due to announce minimum service laws for striking workers.

This announcement could bolster Sterling by pointing to a resolution for the strikes, but could prove controversial. By the Government’s own admission, the bill may prompt more frequent strikes which could weaken Sterling in the longer term.

John Mulcahey

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