Pound Japanese Yen (GBP/JPY) Exchange Rate Holds onto Gains

Pound Japanese Yen (GBP/JPY) Exchange Rate

The Pound Japanese Yen (GBP/JPY) exchange rate relinquished a portion of its earlier gains this morning, potentially set back by volatile risk sentiment. Although the Pound (GBP) has strengthened against its peers in recent days, risk aversion due to the ongoing Israel-Palestine conflict may keep a lid on tailwinds.

At the time of writing, GBP/JPY is trading at ¥182.796, having risen approximately 0.12% on the day.

Pound (GBP) Supported by Central Bank Rhetoric

While dipping briefly against the Japanese Yen (JPY), the Pound is holding onto the majority of its gains in other exchange rates this morning. Despite external headwinds and a not-entirely-positive outlook, hawkish rhetoric from the Bank of England (BoE) appears to be giving Sterling a boost.

BoE policymaker Catherine Mann gave a bold speech earlier in the week, in which she said that policy ‘has to be more aggressive because it has to address both a drift in expectations as well as the actual inflation.’ Mann advocated for hiking interest rates at the bank’s last policy meeting but was outvoted.

Her hawkish stance is comparable to that of several Federal Reserve officials, who were encouraged last week by impressive US jobs data. Alignment between the Bank of England and the Fed minimises the chance of monetary policy divergence, further buoying GBP.

Sterling’s fortunes may change in the next few days, however, as markets await the publication of UK factory data and GDP. As service sector and construction activity remained in contraction in September, manufacturing production is also forecast to have dwindled in the summer.

GDP, on the other hand, is expected to have increased in August – possibly capping Pound losses. Meanwhile, inflationary pressures may escalate once more on account of tensions in the Middle East. As the Sterling outlook remains uncertain, GBP/JPY could be caught in choppy waters.

Japanese Yen (JPY) Rebounds, Remains Pressured

The Japanese Yen, a safe-haven currency, may be benefitting today from unsteady risk sentiment as the ongoing conflict between Israel and Palestinian terrorist organisation Hamas triggers concerns regarding both diplomatic relations and trade security.

JPY has slunk lower against the majority of its peers so far this week but appears to have rebounded in several exchange rates as geopolitical tensions escalate.

Meanwhile, better-than expected Japanese data may also be responsible for the Yen’s uptick this morning. The Reuters Tankan index, a measure for manufacturers in Japan, remained at +4 earlier today rather than falling by 2 points as forecast.

Nevertheless, the report clarified that downside risks from the global economy continued to sap confidence in Japan’s trade-reliant economy, as the elevated costs of raw materials and higher oil prices weighed upon morale.

Analysts recorded comments of an industrial ceramic maker manager: ‘Our business conditions are not so good, because there’s a divide among those who benefit from recovery in car production and those who suffer from China’s overall economic slowdown. Uncertainty around the outlook is high.’

Also capping further gains for the Japanese Yen may be the Bank of Japan (BoJ)’s ultra-easy monetary policy. As with the Bank of England, the BoJ kept interest on hold at its latest policy meeting – but at the negative rate of –0.1%.

In its post-meeting statement, representatives said: ‘The Bank will patiently continue with monetary easing while nimbly responding to development in economic activity and prices as well as financial conditions.’

GBP/JPY Exchange Rate Forecast: UK Data in the Spotlight

The Pound Japanese Yen exchange rate may fluctuate tomorrow, in line with several factors.

If the UK’s manufacturing and industrial production figures fall as expected, Sterling may weaken against its peers. Moreover, external geopolitical factors could further sap GBP appeal and direct support toward the safe-haven Yen.

On the other hand, strong UK GDP data may lend the Pound a boost. Unless Japanese machinery orders print significantly above expectations, an impressive UK GDP reading is likely to buoy GBP/JPY, at least temporarily; further hawkish rhetoric from the BoE could lift Sterling higher still.

Olivia Evershed

Contact Olivia Evershed


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