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UK Retail Sales Recovery Fails to Prevent Pound to Japanese Yen (GBP/JPY) Exchange Rate Losses

May 24, 2018 - Written by Toni Johnson

On Wednesday, the Pound to Japanese Yen exchange rate fell from an opening level of 148.8958 to 146.9153.

This Pound Sterling decline was mainly down to UK inflation rate data, which ended up disappointing traders and led to GBP losses against peers including the Yen.

Month-on-month inflation rates rose in April, but both the base and core year-on-year readings declined by more than forecast.

The core reading is considered to be more accurate, because it cuts out volatile factors such as food and fuel costs.

The immediate reaction among Pound traders was negative, because this was seen as a sign that a Bank of England (BoE) interest rate hike was now further away.

James Smith at ING Bank summarised by stating:

‘In principle, this takes some of the heat off the BoE to hike rates again in the near term – although it’s worth remembering policymakers are still focused squarely on wage growth as a measure of underlying inflation.’

Although it didn’t help the Pound much, falling inflation means that UK consumers will face reduced pressure on their incomes with the pace of wage growth exceeding price growth.

Considering possible inflation rate movements in the future, PricewaterhouseCoopers Senior Economic Advisor Andrew Sentance said:

‘The most likely scenario appears to be that UK inflation will remain stuck around 2.5% over the summer and could pick up in the next couple of months.’

Higher inflation in the future is a distinct possibility, given that fuel costs have been edging up due to rising oil prices.

Yesterday was comparatively quieter for Japan; manufacturing activity was estimated to have fallen in May, but this didn’t prevent a JPY/GBP exchange rate rise.

GBP/JPY Exchange Rate Declines despite Retail Sector Recovery

The Pound to Yen (GBP/JPY) has been a victim of circumstance today, with Sterling declining in the pairing despite relatively supportive UK economic data.

This has been a range of retail sales readings for April, which have shown increasing sales activity in all fields.

The results have been particularly positive because of what they mean for the UK retail sector, which noticeably struggled in Q1 2018 because of poor weather and reduced footfall.

Economists were divided about what this means for the UK economy at present, but there were forecasts that sales could fall in the future because of rising fuel costs.

Rising Demand for Haven Currencies Pushes JPY/GBP Exchange Rate Higher

A breakdown in relations between the US and North Korea has been highly beneficial to the Japanese Yen (JPY) today, pushing it up by 0.6% against the Pound (GBP).

Despite cautious optimism about the planned meeting of the US and North Korean leaders next month, the situation has since deteriorated and the event called off.

This puts the prospect of escalating tensions between the two nations back on the table and has sent currency traders rushing to the relative stability of the Japanese Yen.

The latest Japanese economic news has also supported the Yen; this has been a statement from Bank of Japan (BoJ) official Makoto Sakurai who said:

‘If inflation picks up, the effect of our stimulus policy will increase. That would be the timing where the BOJ would need to think about various steps.’

Although based on an ‘if’, this statement at least opens the door to eventual monetary policy tightening at the BoJ, something long awaited by traders.

Future GBP/JPY Exchange Rate Forecast: Will Pound Sterling Struggle on UK GDP Slowdown?

This week may end on a sour note for the Pound (GBP) when trading against the Japanese Yen (JPY), as UK GDP and business investment data is predicted to print negatively.

Friday’s data might devalue Sterling if levels of GDP growth and business investment are estimated to have fallen in Q1 2018.

Such results could be interpreted as symptoms of Brexit, which may then lead traders to consider the stagnant state of negotiations with the EU.

The next major Japanese data will be out on Tuesday, when the national jobless rate for April will be announced.

The unemployment rate is forecast to remain at 2.5%, just above the historic low of 2.4% seen in January this year.

A jobless rate of 2.5% will still be an enviable figure compared to other nations, so the Yen may not see much movement if the unemployment reading remains static.
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