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GBP JPY Exchange Rate Nosedives as BoE’s Broadbent Shoots down Rate Hike

July 12, 2017 - Written by John Cameron

The Pound Japanese Yen (GBP JPY) fell to a new two week low this morning as it was undermined by comments from Bank of England (BoE) Deputy Governor Ben Broadbent.

Uptick in UK Employment Not Enough to Offset Negative Monetary Policy Outlook

After abstaining from commenting on monetary policy yesterday as he made a speech in Scotland Broadbent shocked markets this morning in an interview with the Press and Journal in Aberdeen, in which he declared that he was not yet prepared to raise interest rates.

In the interview Broadbent suggested that there were too many ‘imponderables’ still hanging over the UK economy that would make it ‘very difficult’ for the Monetary Policy Committee (MPC) to ascertain whether the economy could support higher interest rates.

Broadbent’s comments have effectively squashed any chance of the BoE raising interest rates in August’s monetary policy meeting as some investors had hoped, with only two of the eight MPC members expected to vote for a rate hike in next month’s meeting.

However the Pound was able to mount a slight recovery this morning with the release of the UK’s latest employment data.

According the Office for National Statistics (ONS) the jobless rate fell from 4.6% to a new 42-year low of 4.5% in May as 175,000 Britons entered the workforce, with employment levels reaching a record high of 75.9%.

While the jump in employment levels impressed investors the accompanying wage data still lead to some concerns as Average Earnings only climbed 1.8%, down from 2.1% the month before and well behind the current inflation rate of 2.9%, meaning that UK workers are still facing a drop in real wages.

ONS senior statistician Matt Hughes said;

‘The general picture is little changed on last month, with the overall employment rate and that for women both at record highs, the inactivity rate at a joint record low and the unemployment rate falling to its lowest since early summer 1975.’
‘Despite the strong jobs picture, however, there has been another real-terms fall in total earnings, with the growth in weekly wages low and inflation still rising.’

Traders Remain Wary of Japanese Yen (JPY) in Face of BoJ Dovishness

While the Japanese Yen has made strong gains against the Pound this morning its advance continues to be undermined by concerns over the Bank of Japan’s (BoJ) monetary policy as while many other central banks begin moving towards raising interest rates the BoJ appears to remain committed to its expansive quantitative easing programme.

Yann Quelenn, Market Analyst at Swissquote bank said;

‘The Bank of Japan looks likely to be the only major central bank that will not raise its interest rates this year, this is one great reason why investors are staying away from the JPY.’

This also follows the bank’s commitment last week to purchase unlimited amount of 10-year Japanese government bonds, further undermining any chances of the bank tightening its monetary policy in the foreseeable future.

GBP JPY Forecast: Brexit Worries to Pressure Sterling?

Looking ahead the GBP JPY exchange rate may struggle to advance during the remainder of this week’s session following a lull in UK economic data, with the next piece of notable economic data being June’s inflation figures next Tuesday.

Investors are instead likely to focus on how Brexit talks are progressing, with the Pound likely to stumble if there is any more suggestion of the UK leaving without a deal, especially following Foreign Secretary Boris Johnson’s remark that the EU can ‘go whistle’ over any possibility of a ‘extortionate’ divorce deal.

Meanwhile the Japanese Yen may retreat at the end of the week with the release of the nation’s latest Industrial Production figures, with analysts forecasting that output will have plummeted from 4.0% to -3.3% in May.

Current Interbank Exchange Rates

At the time of writing the GBP JPY exchange rate was trending around 145.9640 and the JPY GBP exchange rate was trending around 0.0069.

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