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GBP JPY Exchange Rate Trends Higher as Japan Factory Output Reaches 6-Month Low

May 23, 2017 - Written by John Cameron

The Pound Japanese Yen (GBP JPY) exchange rate strengthened this morning as Japan’s manufacturing sector reported a slowdown in May.

According to data published by IHS Markit Japan’s latest Manufacturing PMI tumbled from 52.7 to 52.0 In May, reaching a new six-month low and disappointing some investors who had predicted that activity would rise.
Most notably output slowed in May as both import and export orders grew at a subdued rate this month, leading to only moderate rises in employment and stock purchases.

Paul Smith, senior economist at IHS Markit said;

‘May’s PMI data signalled a broad-based slowdown in growth of the manufacturing sector, with output, new orders and employment all rising at their slowest rates since last November.’

‘Although growth is being maintained at a decent clip, reports of ‘wait-and-see’ attitudes amongst clients, excess warehouse inventories and recent sharp rises in raw material costs all served to undermine expansion during the month.’

While the data was not horrendous it suggested that the recent strong upswing in Japan’s manufacturing may be coming to an end and that growth is likely to remain level over the coming months.

Meanwhile the Pound’s advance was hindered today by the release of the UK’s latest Public Sector Borrowing figures.

The ONS reported that the public deficit widened to -£10.4bn in April, outpacing initial estimates that it would grow to -£8.15bn as the UK government was forced to borrow more than expected to balance the books.

This is not a good start to the financial year for Chancellor Philip Hammond who is seeking to eliminate the deficit by 2025.

However it wasn’t all doom and gloom as the ONS reported that last month’s deficit had been revised down by over £3bn thanks to strong receipts and lower spending that initially estimated.

This brought the government’s shortfall down from £52bn to £48.7bn over the last financial year which was well below the Office for Budget Responsibility’s (OBR) target of £51.7bn and was the lowest since the 2007/08 financial year.

John Hawksworth, PwC chief economist said;

‘On the positive side, the estimate budget deficit for 2016/17 as a whole was revised down by more than £3 billion due to higher tax receipts and lower spending than initially estimated last month. The deficit last year was only around 2.5% of GDP, similar to pre-crisis levels and moving closer to levels that would be sustainable in the long run.’

Looking ahead the GBP JPY exchange rate may slide again later in the week, as the ONS releases its second reading for the UK’s first quarter GDP, with analysts expecting that it will confirm that growth slowed from 0.7% to 0.3% at the start of the year.

Meanwhile the Japanese Yen may extend its losses early on Wednesday if Haruhiko Kuroda, Governor of the Bank of Japan (BoJ) remains dovish towards future monetary policy in a speech at the 2017 BOJ-IMES Conference.

Current Interbank Exchange Rates

At the time of writing the GBP JPY exchange rate was trending around 144.3300 and the JPY GBP exchange rate was trending around 0.0069.
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