Pound Japanese Yen (GBP/JPY) Exchange Rate Attempts Recovery as Japanese GDP Misses Forecasts

Pound Japanese Yen (GBP/JPY) Exchange Rate Lifts, Sterling Enjoys an Uptick

The Pound Japanese Yen (GBP/JPY) exchange rate is rising so far today, reversing losses from earlier this week as Japan’s finalised GDP report for Q2 missed forecasts. Also buoying the Pound (GBP) is a close assessment of the Bank of England (BoE)’s policy tightening outlook – Governor Andrew Bailey signalled this week that the interest rate peak is near.

At the time of writing, GBP/JPY is trading at around ¥183.855, having climbed overnight by approximately 0.15%.

Japanese Yen (JPY) Weakens Following Disappointing GDP Release

The Japanese Yen (JPY) is weakening against its peers today as the latest GDP data from Japan printed below expectations, revealing that economic growth in the country was less than originally thought.

On a quarterly basis, GDP for Q2 printed at 1.2% – rather than 1.3% as expected – while on an annualised basis the economy grew by 4.8%. This is 0.7% below earlier estimates, reflecting a decline in business investment and private consumption.

This morning’s release has gone some way to undermine investors’ confidence in the Bank of Japan (BoJ)’s forecasts. The central bank had projected that solid domestic demand would keep the country’s economy on course for recovery; yet today’s data suggests that weakening growth in the US and China are weighing on Japan’s prospects by more than anticipated.

Takeshi Minami, chief economist at Norinchukin Research Institute, acknowledged:

‘Weak exports to China may be making Japanese manufacturers cautious about investing. The hope is that service-sector firms will pick up the slack, though sluggish consumption could discourage them to spend money, too.’

Also dampening support for the Yen may be lingering headwinds following yesterday’s speech from BoJ policymaker Junko Nakagawa. Nakagawa suggested the bank is in no rush to phase out its massive stimulus programme, indicating that negative interest rates are here to stay for the time being.

Pound (GBP) Finds Support as Markets Consider Interest Rate Peak

The Pound found a brief window of support this morning as markets showed signs of warming to the idea of less restrictive monetary policy.

Given the increasing risk of economic turmoil due to higher interest rates within Western central banks, caution is becoming a more favourable strategy: dovish comments made by the BoE’s Swati Dhingra were recently received with relative support.

Dhingra said in an annual report to parliament’s Treasury Committee: ‘Policy is already sufficiently restrictive, and the lagged effects of further tightening pose serious risks of output volatility in order to make a small dent on inflation.’ Her comments echo Governor Andrew Bailey’s recent insinuations that the central bank’s interest rate peak is nearing.

Continuing to weigh upon the Pound, however, are employment and wage growth statistics, which still show signs of being affected by inflation. Extended wage growth is fuelling concerns of persistent inflationary pressures; moreover, the Recruitment & Employment Confederation (REC) reported earlier this week that permanent staff placement has dropped to the lowest since June 2020.

Yet business activity according to the latest manufacturing and service sector PMIs has taken a dent as higher interest rates hurt productivity. Conflicting signals showing damage inflicted by inflation versus restrictive monetary policy keep GBP sentiment subdued so long as the solution to the UK’s economic troubles remains uncertain.

GBP/JPY Forecast: Fresh UK Data to Shape Exchange Rate?

Into next week, the Pound Japanese Yen exchange rate is likely to be directed by a fresh set of UK employment data. The country’s unemployment rate will indicate the impact of economic turbulence on hiring practices and is expected to replace last month’s data as the highest rate since late-2021.

The data itself, as well as the central bank’s response to it, will be closely watched for clues as to policymaker’s likely forward action. Speeches from the BoE’s Huw Pill and Catherine Mann may also give an indication of the central bank’s stance.

Elsewhere, intermittent Japanese data, US data pertaining to the state of the world’s largest economy and risk sentiment may all play a part in GBP/JPY movement. If core inflation in the US remains unchanged on the previous month, the prospect of a dovish Federal Reserve may allay fears of Fed/BoE monetary policy divergence, lending Sterling a further boost.

Olivia Evershed

Contact Olivia Evershed

Do Not Sell My Personal Information