Pound Japanese Yen (GBP/JPY) exchange rate hits eight-and-a-half year high

Pound Japanese Yen (GBP/JPY) exchange rate firms as Japanese PMIs disappoint

The Pound Japanese Yen (GBP/JPY) exchange rate has extended its climb of almost nine years so far today, as the Japanese Yen (JPY) is depressed by worse-than-forecast PMI data. Meanwhile, the Pound (GBP) trades mixed as manufacturing activity in the UK continues to contract.

At the time of writing, GBP/JPY is trading at ¥190,124, having climbed by more than 0.4% in the past 24 hours.

Japanese Yen (JPY) sinks amid weak data and dovish commentary

The Japanese Yen is sliding against its peers across the board, as both services and manufacturing data miss expectations and subsequent comments from Japan’s Finance Minister do little to lift morale.

During this morning’s Asian session, February’s Jibun Bank manufacturing PMI printed at 47.2 from 48 the previous month; rather than inching higher as expected. Meanwhile, service sector growth also fell, from 53.1 in January to 52.5.

Possibly concerned about the implications for Japan’s economy, Japanese Finance Minister Shunichi Suzuki said he was ‘closely watching FX moves with a high sense of urgency’, reiterating that it was ‘important for currencies to move in stable manner reflecting fundamentals.’

The tone of his most recent comments contrasts with observations made last week, in which Suzuki expressed:

‘The Bank of Japan holds jurisdiction over monetary policy. But there will be a phase when interest rates go up.’

Such hawkish indications correlate with reports that the Bank of Japan (BoJ) is on track to tighten monetary policy in coming months, even as recent data shows the economy slipped into a recession. Sources confirm that a significant portion of the currency market expect the central bank to abandon negative interest rates by April.

Pound (GBP) trades mixed as manufacturing activity remains sluggish

The Pound (GBP) was dealt a blow this morning as the UK’s latest manufacturing PMI showed that the sector remains steadfastly in contraction. Although improving minimally on January’s reading, today’s data marked the twelfth consecutive month of a below-50 reading.

Nevertheless, February’s services PMI exceeded expectations, shielding the Pound from deeper losses. as Chris Williamson, Chief Business Economist at S&P Global Market Intelligence listed the report’s positive takeaways:

‘UK economic growth has accelerated in February, with the early PMI survey data pointing to the largest rise in business activity for nine months.

This is by no means a one-off improvement, as faster growth has now been recorded for four straight months after a brief spell of decline late last year.’

Concerns surrounding inflation prevent greater optimism: Williamson conceded a risk of inflation getting stuck at its most recent level of 4% rather than falling to the BoE’s 2% target. Economic growth aside, average cost burdens increased in February at the fastest pace for six months.

The mixed data puts the Bank of England (BoE) in a difficult position, as policymakers weigh up the risks of prolonging recessionary dangers versus allowing inflation to escalate. Uncertainty surrounding the BoE’s monetary policy response further pressures GBP morale.

GBP/JPY forecast: exchange rate wavers amid central bank uncertainty

The Pound Japanese Yen exchange rate may continue to trade in a narrow range, if uncertainty over central bank policy adjustments prevails. Moreover, domestic politics in the UK has become messy as the country’s official stance on Gaza provokes widespread condemnation from the public, limiting Sterling gains.

International headwinds, if geopolitical tensions escalate, could skew GBP/JPY in the Yen’s favour, if a risk-off mood dominates. The safe-haven JPY generally attracts support in times of economic instability.

Olivia Evershed

Contact Olivia Evershed


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