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Pound to Japanese Yen Exchange Rate Falls - GBP/JPY Slumps Despite BoJ Inflation Expectations Cut

January 22, 2015 - Written by Tim Boyer

Pound Falls Against Japanese Yen (GBP/JPY) Despite Cut BoJ Inflation Expectations Cut



The Pound slipped against the Japanese Yen on Thursday despite the Bank of Japan announcing that it had cut inflation forecasts. The bank has found it difficult to reach inflation targets amid forceful monetary policy and reform under the reign of Prime Minister Shinzo Abe. Japan has struggled with inflation for some time and this week saw the BOJ reveal it may struggle to reach the 2% target in the near future as oil prices continue to fall. Governor Kuroda commented: ‘Looking at wage negotiations and inflation expectations, fortunately there is no concern of Japan being beset by a deflationary mindset again. If Japan is making steady progress toward achieving 2% inflation, there’s no need to take additional steps.’

The Japanese economy slipped into recession last year and it is now expected that inflation won’t increase to the 2% target until 2016. Kuroda continued: ‘We’ve been saying (2% inflation) will likely be achieved in a period of centring fiscal 2015, so there’s the possibility the timing may stretch into fiscal 2016. Even if inflation slows in the near term, the BOJ is not going to react. The BOJ is prepared to look through near-term weakness in inflation.’

Meanwhile, the Pound had an interesting week when the Bank of England released meeting minutes that stated policymakers were unanimous in the vote to keep interest rates on hold. In recent months, several meetings saw two members of the Monetary Policy Committee vote in favour of rate hikes; however, the move was opposed by the other seven members. The minutes read: ‘It was possible that the risks to CPI inflation in the medium run might have, if anything, shifted to the upside, but all members were also alert to the downside risk of current low inflation becoming entrenched.’

Alongside the BoE minutes Unemployment Rate figures emerged, showing a bigger-than-forecast decrease in the unemployment sector. UK joblessness fell from 6.0% to 5.8%, a step lower from the expected 5.9%. Unemployment in the UK is now at its lowest level for six years, with 700,000 job openings on offer. Employment Change rose by 37K while Jobless Claims Change recorded a -29.7K figure. Friday could be a busy day for both the Pound and Japanese Yen with the release of the Japanese Cabinet Office’s monthly report. Markit will also release its Japanese Manufacturing Purchasing Managers Index which resided at 52 in December. Any global developments could also affect both currencies.
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