Short-Term Pound to Yen Exchange Rate Gains Forecast

March 29, 2015 - Written by John Cameron

STORY LINK Short-Term Pound to Yen Exchange Rate Gains Forecast

On the face of it, the Japanese consumer Price Index inflation data looked healthy – the Asian nation’s prices rose by an annualised 2.2% during the twelve months to the end of February.

Analysts had been anticipating a slightly higher showing of 2.3%, but even still the result was not apparently a bad one for the Japanese economy or for the Japanese Yen (currency:JPY).

Not bad, that is, until you take into account the effect of last year’s domestic sales tax increase in Asia’s second economy.

Taking this one-off increment into account, the Japanese economy is in reality very close to entering a period of deflation.

The nation’s policymakers, led by Prime Minister Shinzo Abe, have shown determination in attempting to reinflate the nation’s economy and move away from a long-standing, confidence-sapping, period of falling prices.

Statistics will surely provoke them to consider introducing further monetary policy loosening measures which would be likely to have a marked effect on the relative value of the Japanese Yen (currency:JPY) and other global currencies.

If the Bank of Japan does extend and deepen its Quantitative Easing programme, which already commits Yen85 trillion per anum of new money into the nation’s economic system, then the high-yielding Commodity Dollars are likely to enjoy strong support.

In such a situation, expect the Australian Dollar (currency:AUD), New Zealand Dollar (currency:NZD) and South African Rand (currency:ZAR) to record sustained gains against the Pound Sterling.

However, the value of the Yen (JPY) exchange rate is likely to go the other way, with a continued oversupply of the Japanese tender causing its relative value to slump.

The news may not be universally a bad thing for Japan's economy; Jasper Koll of JP Morgan noted earlier that, ‘last year (Japanese) wages rose at around 1%.

This year we just had the union negotiations and it looks like wage growth is going to double to about 2% - so there's more nominal yen into the pockets.

So a feel-good factor is starting to come back and that's what's going to generate a domestic demand recovery.’

Analysts therefore forecast that, in the long-term at least, this effective rise in real Japanese wages may have a positive effect on the Yen.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Currency Predictions Japanese Yen Forecasts Pound Sterling Forecasts