Pound Japanese Yen (GBP/JPY) Exchange Rate Strengthens as BoJ Remains Steadfast in Face of 41-Year High CPI

Pound Japanese Yen (GBP/JPY) Exchange Rate Firms as BoJ Remains Dovish

The Pound Japanese Yen (GBP/JPY) exchange rate is strengthening this morning, as the Bank of Japan (BoJ) remains steadfastly dovish. This comes despite CPI hitting a 41-year high in January, as the BoJ chooses to prioritise the economy.

At the time of writing, GBP/JPY is trading around ¥162.5000, a rise of around 0.4% from the morning’s opening rates.

Japanese Yen (JPY) Slumps as Inflation Hits 41 Year High

The Japanese Yen (JPY) is weakening this morning, despite inflation rising to a 41-year high. While the pressure is now firmly on the Bank of Japan (BoJ) to control CPI, they remain steadfastly dovish.

Speaking in parliament, the incoming BoJ Governor Kazuo Ueda stated that ultra-low rates must be maintained. While inflation is rising, he reasserted that protecting Japan’s fragile economy is more important.

He further stated:

‘At present, it’s important to support the economy and create an environment where companies can raise wages. It’s important to maintain monetary easing to achieve the BOJ’s inflation target in a sustainable and stable fashion, accompanied by wage hikes.’

As such, investors appear disappointed that Ueda is likely to offer a continuation in the BoJ’s ultra-loose policy.

However, underpinning the Yen may be a mixed market mood. Safe haven flows could be aiding the currency as investors appear wary.

Pound (GBP) Firms as Investors Adjust Prices

The Pound (GBP) is strengthening this morning, allowing GBP to recoup some previous loses. Furthermore, Sterling may be being underpinned by investor hopes of further rate hikes from the Bank of England (BoE).

Yesterday, BoE Policymaker Catherine Mann aided the Pound, as she reiterated her view that further hiking was necessary.

However, due to a lack of meaningful data, GBP’s gains may be being limited by domestic headwinds. Food shortages are continuing across the UK, as fresh vegetables and salad supplies are very restricted.

On top of the shortages, Which? found that food inflation had continued to soar, severely impacting the lowest income households. Everyday staples have seen a surge in prices, almost double the current CPI levels.

Pound Japanese Yen (GBP/JPY) Exchange Rate Forecast: BoE Speeches in Focus

Looking ahead to next week for the Pound, two key Bank of England policymakers are scheduled to speak. BoE Governor Andrew Bailey is due to deliver a speech on Wednesday, following by Chief Economist Huw Pill on Thursday.

Should Bailey and Pill strike a hawkish note in their speeches, Sterling could strengthen as investors bet on further tightening.

For the Yen, January’s retail sales data is due to print on Monday, alongside industrial production data. Retail sales are forecast to have fallen, to 3.8% from 4%, which could weigh on JPY.

However, industrial production is forecast to have increased from -2.6% to 0.3%. If this prints as predicted, then Yen could rally as the sector shows signs of life.

John Mulcahey

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