Pound Japanese Yen (GBP/JPY) tips lower as investors await BoE decision
The Pound Japanese Yen (GBP/JPY) exchange rate has weakened through today’s session following erratic trading last week as UK data printed mixed and the Bank of Japan (BoJ) kept interest rates on hold at –0.1%.
At the time of writing, GBP/JPY is trading at ¥187.533, having fallen by approximately 0.4% in the past 24 hours.
Pound (GBP) subdued ahead of central bank decision
The Pound (GBP) is trending broadly sideways against the majority of its peers today as investors wait on tenterhooks ahead of the Bank of England’s (BoE) interest rate decision on Thursday.
Sterling’s sluggish trade follows a dynamic week, as GBP seesawed amid contradictory economic data. On Wednesday, the UK’s manufacturing and service sector PMIs printed above forecasts, lending the Pound a boost; on Thursday however, a dismal retail report from the Confederation of British Industry (CBI) reversed gains.
A lack of data today leaves traders to regroup ahead of Thursday. Although the BoE is expected to strike a hawkish tone in line with persistent inflationary pressures, uncertainty over the bank’s forward guidance sparks speculation. As recent predictions from policymakers have been inaccurate, investors are hesitant to place bets.
Dan Hanson, chief UK economist at Bloomberg Economics, comments: ‘The challenge with persistent forecast misses is that they generate uncertainty about the true direction of travel, which can make policy less responsive to genuine news.’
In the meantime, the latest interest rate decision from the Federal Reserve may spark movement in the GBP/JPY exchange rate, sending ripples across the currency market. If the Fed strike a hawkish tone, Sterling investors may turn more bearish on fears of monetary policy divergence between central banks.
Japanese Yen (JPY) firms as unemployment data awaited
The Japanese Yen (JPY) is climbing against the majority of its peers, extending tailwinds from the previous week. Intermittent risk aversion boosted the currency given its safe-haven status, while Tuesday’s interest rate decision from the Bank of Japan appeared to trigger bullish sentiment.
While the BoJ left its ultra-loose monetary policy settings unchanged, investors became convinced that the central bank will exit its negative interest rate regime in March or April. Such expectations were encouraged by hawkish comments from the Bank of Japan’s Governor, Kazuo Ueda.
In the in the post-meeting press conference, Ueda affirmed that the likelihood of Japan’s achieving its 2% inflation target is gradually rising, boosting investors’ confidence. Ueda also remarked:
‘Based on our current economic and price forecast, we think we can avoid the risk of a severe, irregular policy shift.’
Later tonight, the latest unemployment data from Japan will be released, likely influencing the currency’s trajectory against its peers. The country’s unemployment rate is expected to remain at the lowest point since June last year, which could lend further support to the Yen.
GBP/JPY forecast: BoE decision to affect trading dynamics?
The most significant event for the Pound, the Bank of England’s interest rate decision and forward guidance is likely to impact the direction of GBP/JPY trade this week. In the meantime, however, the Pound Japanese Yen exchange rate may be influenced by UK consumer credit data, Japanese retail sales and the Federal Reserve’s rate decision on Wednesday.
Tomorrow’s consumer credit release is expected to report growth of £1.3411bn, following a £2.005bn increase in November. If the rate of consumer borrowing decreased in the UK as expected, the prospect of recovering household finances could buoy Sterling morale.
In Wednesday’s Asian session, Japanese annualised retail data is forecast to print at 4.7%. This would mark a deceleration in sales growth, potentially depressing JPY. Furthermore, a dovish message from the Fed would likely boost global risk sentiment, further detracting from the Yen’s appeal; a hawkish Fed could attract risk-off support to the currency, however.