Pound Softens against Yen (GBP/JPY) After Japanese Activity Increases in January

Modified: Thursday, 19 March 2015 23:34 BST - Written by Ben Hughes

STORY LINK Pound Softens against Yen (GBP/JPY) After Japanese Activity Increases in January

British Pound to Yen (GBP/JPY) Exchange Rate Softens After Japanese Activity Increases

The Pound slipped against the Japanese Yen on Thursday after Japanese data rose in line with expectations.

The Japanese All Industry Activity Index rose by 1.9% in January after December’s positively revised -0.1% dip.

The index has fallen in the previous two months so the January rise was a welcome event to kick the year off.

The Yen has softened in recent years, but the weaker currency doesn’t appear to be bringing back jobs in the industrial sector.

Prime Minister Shinzo Abe has implemented radical measures dubbed ‘Abenomics’ in an attempt to boost growth and pull Japan out from its deflationary spiral.

One effect of Abenomics is a weaker currency, and it was hoped that a softer Yen could bring back manufacturers who had fled the country when the currency was at its strongest. Researcher Ryutaro Magome commented:

‘We haven’t heard of any major cases of manufacturers coming back here because of a weaker Yen. When you think about the cost of recreating what’s gone and the Yen’s current level, it makes sense for them to keep production abroad.’


However, the problems don’t stop there—employment and wage growth in the sector are unable to improve dramatically—a development needed for Abenomics to have its full effect. Tochigi Bank representative Takao Watanabe commented: ‘A weaker Yen is sending benefits to major exporters, but Tochigi doesn’t have many big companies and the impact hadn’t reached the smaller guys. The labour market has yet to recover in Tochigi, which is why wages are not increased and consumer spending isn’t improving much.’

Meanwhile, the Pound had an interesting week as UK politics heated up, causing a drop in investor sentiment. It’s expected that the Pound will become increasingly volatile in coming months as the election looms and a political shakeup becomes a very real threat. However, another event that placed pressure on the Pound was weaker-than-expected wage growth. Weekly Earnings Excluding Bonuses improved by only 1.6% in the three months through January on the year, in comparison to the former 1.7%. Economists had expected 1.8% growth which could have proved supportive to the Pound if it had materialised.

In addition, the fall in wage growth led investors to price out near-future increases in borrowing costs and the Pound softened as a result. UK CBI Trends Total Orders and Trends Selling Prices will be out on Friday and could influence the Pound moderately.

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