Pound Japanese Yen (GBP/JPY) Exchange Rate Tumbles Following Japan’s Inflation Release

Pound Japanese Yen (GBP/JPY) Dips as Japanese Data Dents Exchange Rate

The Pound Japanese Yen (GBP/JPY) exchange rate slid lower this morning, weakening on account of strength in the Yen (JPY). Following the release of Japan’s latest inflation data, investors expect the Bank of Japan (BoJ) to continue to enforce policy easing measures.

At the time of writing, GBP/JPY is trading at ¥184.862, having fallen by more than 0.7% in the past 24 hours.

Japanese Yen (JPY) Firms Against Basket of Rivals

The Japanese Yen is climbing unanimously against its peers today, bolstered by the release of fresh inflation data during this morning’s Asian session.

Headline inflation exceeded expectations, printing at 3.3% for the year to July; the BoJ’s target rate for core inflation is 2%. July’s data represents the sixteenth consecutive month of above-target inflation.

Moreover, so-called ‘core-core inflation’ – excluding fresh food and energy prices – rose 4.3% year-on-year in July. According to Reuters’ analysts, the Bank of Japan considers the latter to be a better gauge of trend inflation.

Yet core inflation weakened as expected compared to June’s data. Today’s reading came in at 3.1%, 0.2% lower than the previous reading – and central bank officials argue that wage pressures have yet to build up enough to warrant adjustments to the BoJ’s current loose monetary policy stance.

Gabriel Ng, economist at Capital Economics, comments:

‘We still expect the Bank of Japan to keep its short-term policy rate unchanged for the foreseeable future.’

Pound (GBP) Trades Mixed as Sales Growth Plummets

The Pound (GBP) fell against the Japanese Yen this morning – but is trending variably in other exchange rates despite the release of downbeat data. Retail sales in the UK printed at –1.2% for the month of July, rather than the –0.5% forecast.

The data marks the first contraction in sales since March, with reduced spending seen across both food and non-food items. Analysts report that higher living costs combined with wet weather to dampen consumer activity: on a yearly basis, retail trade shrank by 3.2%, the steepest decline in three months.

Also weighing upon the Pound are cost-of-living concerns sparked by still-high inflationary pressures.

Susannah Streeter writes for the Evening Standard: ‘inflation may look like it’s hurtling down a hill but it risks being snagged on the way by the surprise rise in wage growth’; ‘to keep the tight ball of inflation rolling in the right direction, it looks like it needs another push… so the Bank of England is forecast to increase the base rate from 5.25 per cent to 5.5 per cent in September.’

In another context, however, the prospect of higher interest rates from the Bank of England (BoE) is a boon to traders looking for a higher return on their investments. The prospect of a hawkish Bank of England continues to inspire bullish sentiment amongst opportunistic investors.

Another silver lining protecting GBP against further losses is news that mortgage rates are finally coming down. Halifax, the country’s biggest mortgage lender, is among the latest to announce a cut to its rates – Jamie Lennox, director at Dimora Mortgages, observes:

‘This is a positive boost for the mortgage and property market given that markets are baking in further base rate increases…’

GBP/JPY Forecast: PMI Data in the Spotlight

Into next week, the GBP/JPY exchange rate is likely to trade on a fresh clutch of data, including PMI releases from both Japan and the UK.

Midweek, Japanese manufacturing activity is expected to be revealed to have increased, potentially buoying the Yen; although gains may be capped by a softening of service-sector growth. Later in the week, Tokyo’s latest inflation data will be revealed: the core rate is expected to print at 2.9%, easing towards the BoJ’s target and likely lending JPY tailwinds.

Meanwhile, both services and manufacturing activity in the UK are expected to have improved, forecast to print at 51.5 and 45.3 respectively. If manufacturing activity remains in contraction territory, however, Sterling gains could be limited.


Olivia Evershed

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