Pound Japanese Yen (GBP/JPY) exchange rate climbs following dovish BoJ remarks
The Pound Japanese Yen (GBP/JPY) exchange rate has risen to a 20-day high this morning as mild remarks from the Bank of Japan’s (BoJ) Deputy Governor Uchida Shinichi weigh upon the Japanese Yen (JPY). Meanwhile, the Pound (GBP) is trading within a narrow range ahead of speeches from several Bank of England (BoE) officials.
At the time of writing, GBP/JPY is trading at ¥187.857, having risen by over 0.5% in the past 24 hours.
Japanese Yen (JPY) sustains losses as Shinichi strikes dovish tone
The Japanese Yen is subdued this morning, sliding against its peers in light of comments from BoJ Deputy Governor Uchida Shinichi. Shinichi remarked during this morning’s Asian session that the central bank will not hike aggressively upon ending negative rates, quashing hopes of a hawkish pivot.
His tone was noncommittal, as he told markets:
‘We will first determine whether conditions have fallen into place to shift policy, then consider the most appropriate means, sequence to do so.’
The Bank of Japan has held interest rates at negative levels since 2016, when they were introduced by then-BoJ Governor Haruhiko Kuroda in an attempt to trigger economic growth. Subsequently, the central bank has been stuck in a cycle of maintaining negative rates with limited effect: while the country has seen some economic growth, it remains the most indebted country in the world.
Furthermore, emerging risk appetite caps gains for the safe-haven currency. Despite a hawkish stance from the US Federal Reserve bank, markets are optimistic as the European trading session gets underway.
Looking ahead, the Japanese Yen may claw back some of its losses as the ongoing war on Gaza heightens geopolitical tensions, threatening bearish sentiment. Moreover, the prospect of an end to negative interest rates remains JPY-positive, even without the promise of further rate hikes to come.
Pound (GBP) movement limited as investors await BoE comments
The Pound is trading in a mixed range today ahead of speeches from the Bank of England’s Catherine Mann and Swati Dhingra. The two policymakers are likely to incite a conflicting response, as a significantly hawkish and a dovish member of the Monetary Policy Committee (MPC), respectively.
At the BoE’s interest rate decision meeting last week, Dhingra was the only member of the Committee to vote for a decrease in interest rates, cognisant of the effect restrictive monetary policy is having on UK economic growth. Indeed, as inflation forecasts show waning cost pressures, Dhingra’s vote may be considered a bellwether for more dovish policy action to come.
On the other hand, Catherine Mann voted alongside fellow hawk Jonathan Haskel to raise interest rates by a further 25bps. Mann’s vote reflected confidence that the economy could weather another hike, as indicated by robust levels of wage growth expected this year. Her decision also addressed fears than inflation could become entrenched.
By a 6-person majority, the BoE voted to keep interest rates on hold. Governor Andrew Bailey himself voiced both hawkish and dovish concerns in his monetary policy commentary, stating that borrowing costs ‘need to be restrictive for an extended period’, yet adding:
‘We will not maintain [restrictive monetary policy] any longer than we need to do to achieve the objective of inflation being at 2% on a sustained basis.’
GBP/JPY forecast: US data to influence exchange rate?
The Pound Japanese Yen exchange rate may be affected later today and into tomorrow by key data from the US, which has the potential to alter risk sentiment in the currency market.
Employment data serves as an important indicator of the resilience of an economy; if US initial jobless claims print as expected for the week ending 3 February, marking a decrease from the previous week, US Dollar (USD) investors may be encouraged in their expectations of a hawkish Federal Reserve.
Consequently, market mood may sour if the likelihood of prolonged restrictive policy measures in the US increases. High interest rates stifle growth domestically, but also – in the case of the US – on an international level, given that the country has the world’s largest economy.
Weaker risk appetite may reverse GBP/JPY gains, given the Yen’s status as a safe haven currency.