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Pound to Yen (GBP/JPY) Exchange Rate Climbs after Expectations for Further BOJ Stimulus Rise

February 19, 2015 - Written by Tim Boyer

The Pound made moderate advances against the Japanese Yen on Thursday as economists suggested that the Japanese central bank would need to introduce other stimulus measures in the near future. Despite the Bank of Japan keeping its monetary stimulus programme remaining stable on Wednesday, analysts suggest it’s only a matter of time before additional help is needed. Economist Marcel Thieliant commented: ‘The BOJ does not seem to be fully convinced over the strength of the economic recovery.’ The board voted 8-1 to maintain the current annual 80 trillion Yen policy in place. Thieliant continued: ‘Board members upgraded their assessment of industrial production and exports, which they now see picking up. But they also acknowledged the disappointing fourth quarter GDP data released on Monday by noting that the recovery in private consumption has been sluggish in some areas.’

Japanese growth struggled in the third quarter of 2014 when it contracted by -7.1%. However, Q4 showed an annualised rise of 2.2%. Monetary policy last went underwent expansion in October 2014 when the central bank increased its quantitative easing programme. However, falling oil prices has caused many central banks to introduce additional stimulus measure such as rate cuts. Industry expert Hiromichi Shirakawa commented: ‘The bank seems to continue to take the on-going decline in the CPI inflation rate as a temporary phenomenon. We continue to think it inevitable for the bank to take additional easing actions by autumn as actual inflation rates are underperforming the bank’s projection after the middle of the year.’

Meanwhile, the Pound enjoyed support on Wednesday when labour market stats printed favourably. The UK Unemployment Rate fell from 5.8% to 5.7% while Average Weekly Earnings picked up by 2.1% on the year in the three months through December. In addition, Jobless Claims Change recorded a healthy -38.6K less jobseekers on benefits, defying the -25.0K expectation. The labour market figures saw the Pound rally as investors brought forward expectations for a rate hike.

However, industry expert James Ashley stated: ‘If the most hawkish members think tightening may be needed later in the year, then presumably, the remainder of the committee is more inclined to think 2016 a more suitable timeframe.’ Any whiff of UK rate hikes is likely to cause massive sentiment increases in the Pound. However, the prospect of the upcoming general election could be enough to see the Bank of England postpone from increasing borrowing costs.
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