GBP JPY Exchange Rate nears 6-week High on Carney Comments

June 28, 2017 - Written by Toni Johnson

STORY LINK GBP JPY Exchange Rate nears 6-week High on Carney Comments

Bank of England (BoE) Governor Mark Carney has been responsible for the latest GBP JPY rise from 143.77 to 145.47.

GBP Surges as Traders Assume 2017 UK Interest Rate Hike is a Go

The Pound’s sharp uptrend against the Japanese Yen today came after Carney’s remarks at an event in Portugal.

Attending a meeting of central bankers from around the world, Carney stated that;

‘When the Monetary Policy Committee (MPC) last met, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge how large and persistent the slowdown in growth would prove. Moreover, with domestic inflationary pressures, particularly for wages still subdued, it was appropriate to leave the policy stance unchanged at that time.

Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional’.

This statement generated extreme interest in Sterling, causing it to jump by 1% against the Yen and by notable amounts against most other peers.

The news came at a busy time for the Pound, in the context of a recent high-impact BoE statements.

Last week, BoE official Andy Haldane, a long time policy dove, suddenly turned hawkish and hinted at raising UK interest rates in 2017. In the same week, Carney had stressed that he still saw the wrong conditions to raise UK interest rates.

That sentiment was still present in today’s remarks, but traders seemed to ignore the second half of his statement. Crucially, Carney also said that;

‘The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations. These are some of the issues that the MPC will debate in the coming months’.

Essentially, if business investment remains low along with wage growth then a rate hike may be off the table, not to mention the impact of Brexit talks on the situation.

Today has also brought comments from the BoE’s Jon Cunliffe, who has stressed that he does not see the time as right to raise UK interest rates.

If other BoE officials speak in favour of higher UK interest rates then the Pound could appreciate, but for now, the ‘will-they won’t-they’ outlook on the BoE MPC remains as unclear as ever.

JPY GBP Exchange Rate Tanks on Limited Data, Kuroda Comments

While Bank of Japan (BoJ) Governor Haruhiko Kuroda has also been speaking at today’s central banker event, he has failed to provide similar support to the Yen as Carney has to the Pound.

Kuroda’s outlook was markedly more cautious, with his statements focusing on the tentative nature of business activities at present.

The BoJ Governor has emphasised that Japanese wage growth has been slow recently, as has business growth.

Recent government news suggests that Japanese Prime Minister Shinzo Abe may be looking to scrap plans to balance the budget by 2020. This is ostensibly due to a concern about triggering an economic cooldown, which could take place is Abe presses ahead with an unpopular hike in the sales tax.

The move may not be especially popular among G20 countries, according to Mizuho Research Institute Senior Economist Akihiko Noda;

‘There would be criticism from the G20, because the economic impact would be the same as bankrolling government spending and influencing the [Yen]. Japan shouldn't take the G20 lightly’.

GBP JPY Forecast: Sterling Slump Possible on Upcoming GDP Stats

The next UK economic data to watch out for will be Friday’s Q1 GDP growth rate figures. These will be finalised and are forecast to show a slight annual rise, but a greater quarter-on-quarter drop.

The annual figure is usually the most impactful, but any signs of a weakening economy may prove too much for currently excitable currency traders and cause a GBP drop.

Friday’s Japanese news will cover national inflation and unemployment data.

Inflation is forecast to rise slightly in May, but unemployment is predicted to remain at 2.8%, so the Yen may ultimately be unmoved.

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TAGS: Pound Yen Forecasts