Pound to Japanese Yen Rate Crashes as IMF Cuts Growth Forecasts

July 18, 2016 - Written by Minesh Chaudhari

STORY LINK Pound to Japanese Yen Rate Crashes as IMF Cuts Growth Forecasts

While the International Monetary Fund has recently cut its global growth outlook, the UK has also been hit hard, with the financial institution citing 'Brexit' as a reason for lowering the UK's forecasts for economic expansion in 2016 and 2017.

The next day's movement for the Pound and the Yen will be in GBP's hands, given that the next Japanese ecostats aren't due until Wednesday at the earliest.

Pound Sterling (GBP) Exchange Rates Advanced after BoE Held Rates

Last month’s decision by the British electorate to exit the European Union has prompted widespread speculation from investors that the world’s central banks will take a pre-emptive step and loosen their respective monetary policies.

The Bank of England (BoE) resisted the temptation to do just that last Thursday, preferring to wait a few weeks until next month’s decision.

However, market analysts believe that the Bank of Japan may not show the same degree of patience when it makes its next scheduled policy announcement on Friday 29th July.

Will the Bank of Japan (BOJ) Ease Monetary Policy Further?

Without question, the political landscape of the UK has irrevocably altered during the past month, but the political situation in Japan has also changed thanks to a convincing victory for Prime Minister Shinzo Abe in the recent upper house elections. The result strengthens Abe’s hand and has led to wild rumours that the Japanese Premier will press his central bank to loosen its already ultra-loose monetary policy at the soonest opportunity.

Some analyst have even suggested that the BoJ may go down the route of ‘Helicopter Money’ – an abstruse theory proposed by legendary Chicagoan monetarist economist Milton Friedman during the middle part of the last century which sees central banks making funds available to governments so that they can in turn fund expansionary fiscal policies.

However, the bulk of BoJ-watchers feel that such a move would be too radical even for what is, by reputation, the world’s most radical lender of the last resort; one anonymous official went along with this at the end of last week, stating that, ‘the government won’t do helicopter money in the strict sense.’ He went on to suggest that, ‘it is a different story when you’re talking about expanding fiscal and monetary policy. That’s possible.’

The potential for more Japanese QE accompanied by a wide-ranging tax cut package and increased government spending is forecast to see global appetite for risk soar – a move which would favour the Commodity Dollars (AUD, NZD and CAD) in the currency markets. Ironically, the safe haven Japanese Yen (currency : JPY) may be one of the biggest losers from such a BoJ policy path.

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TAGS: Japanese Yen Forecasts Pound Sterling Forecasts Pound Yen Forecasts