Pound Japanese Yen Exchange Rate Catapulted Higher Following BoJ Rate Decision
The Pound Japanese Yen (GBP/JPY) exchange rate is soaring this morning, following the Bank of Japan’s (BoJ) latest interest rate decision.
At the time of writing the GBP/JPY exchange rate is trading at around ¥183.4060, Up roughly 1.5% from this morning’s opening levels.
Japanese Yen (JPY) Collapses as BoJ Maintains Negative Interest Rates
The Japanese Yen (JPY) has been met by heavy losses this morning as the Bank of Japan opted to leave interest rates on hold.
Following the bank’s last policy meeting of the year, officials at the bank opted to keep interest rates at –0.1%. Leaving the BoJ as the only major central bank to maintain interest rates below 0.
The Bank of Japan stuck with the world’s last negative interest rate Tuesday and offered no guidance on if it might scrap the policy next year https://t.co/lNDw63Gr9U
— Bloomberg Markets (@markets) December 19, 2023
While most economists had forecast the BoJ would leave its monetary policy untouched this month, some JPY investors had bet on a hawkish change to the bank’s forward guidance.
The Yen jumped earlier in December in response to comments from BoJ Governor Kazuo Udea. Investors began to price in future rate hikes after Udea warned that managing monetary policy ‘will become even more challenging from the year end and heading into next year’.
However, the BoJ offered little insight into when it is likely to exit its ultra-loose policy. In his accompanying press conference Udea said the bank needed more evidence of persistent wage and price growth.
Udea said:
‘The chance of trend inflation accelerating towards our price target is gradually heightening. But we still need to scrutinise whether a positive wage-inflation cycle will fall in place.’
This caused the Yen to plummet as the more bullish JPY investors began to unwind their rate hike bets.
Pound (GBP) Tempered by Fears of ‘Hard Landing’ for UK Economy
While it has soared against the Japanese Yen, the Pound (GBP) is struggling to find momentum elsewhere this morning.
This comes amid a warning the UK economy could face significant hardship in 2024. Bond fund giant Pimco suggests the UK may suffer a ‘hard landing’ next year as a result of high interest rates.
Daniel Ivascyn, chief investment officer at Pimco, warned:
‘In the case of the UK — a smaller, open economy, with a consumer that’s feeling the brunt of central bank policy far more than their US counterparts — you just have a higher probability of more significant economic deterioration.
‘We do think there’s potentially more hard landing risks.’
This comes hot on the heels of a warning from accountancy giant KPMG, that the UK economy will ‘limp’ through 2024.
Pound Japanese Yen Exchange Rate Forecast: Cooling UK Inflation to Weaken Sterling?
Looking ahead, the Pound Japanese Yen exchange rate may come under pressure on Wednesday, with the publication of the UK’s consumer price index.
November’s CPI figures are forecast to report inflation decelerated from 4.6% to 4.4%. However, if inflation continues to cool at a faster-than-expected pace then Sterling is likely to weaken.
Meanwhile, the second half of this week will see the publication of the minutes from the BoJ’s policy meeting. Could these shed more light on when the bank will begin to raise interest rates and inject some volatility into the Yen?