Pound Jumps against Japanese Yen (GBP/JPY) ahead of Abe Election

December 11, 2014 - Written by Ben Hughes

STORY LINK Pound Jumps against Japanese Yen (GBP/JPY) ahead of Abe Election

The Pound made advances against the Japanese Yen before the Japanese snap election on December 14th. Industry expert Mitsushige Akino commented: ‘Japan is in recession, deflation is taking hold in Europe, developing economies are in a tight spot with cheaper oil and resources, so the US is the only bright sport. The biggest worry now is that the slowdown globally might start to weigh on the US.’ Global health has been thwarted by factors such as the flailing Eurozone recovery, geopolitical tensions and falling commodity prices. Strategist Soichiro Monji stated: ‘Oil prices are beginning to impact the market negatively, especially energy stocks which are falling in Japan and locally. There’s also concern about the economies of oil exporting countries such as Russia, Australia and Brazil.’ Japanese Prime Minister Shinzo Abe, vowed to pull Japan out of the trough of deflation it's been languishing in for decades. However, when the economy slipped into recession Abe called a snap election so citizens would have the option of voting him back into power and thereby show their confidence in ‘Abenomics’, or else vote for someone new.

Sunday will be an influential day for the Yen, not only as a result of the snap election, but also because of domestic data. The Tankan Large Manufacturers Outlook will be released and is forecast to remain at 13 in the fourth quarter. Tuesday may see some swings in the Pound to Japanese Yen exchange rate when the UK Consumer Price Index (CPI) is released. On the year, inflation resided at 1.5% in November; however, the Bank of England (BoE) has forecast a temporary dip below 1.0% in the next six months.

The UK seemed on course to be the first of the Group of Seven (G7) developed nations to hike interest rates since the onset of the global financial crisis. However, weaker UK figures and a dovish Bank of England have seen investors readjust their bets for increased borrowing costs, pushing the UK currency lower. On Thursday the RICS House Price Balance showed a depreciation in value, falling from 20% in October, to only 13% in November. Economists had forecast a drop to 15%.

One positive aspect for the UK economy on Thursday was the BoE's decision to publish full reports from its Monetary Policy Committee (MPC) meetings, the gatherings responsible for determining the course of monetary policy. The central bank will delay publishing the reports for eight years (much like other central banks do) in an attempt to offer more transparency. Friday will see the release of UK Construction Output which may influence the Pound slightly.

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