January 23, 2019 - Written by John Cameron
STORY LINK Pound Japanese Yen Exchange Rate News: GBP/JPY Soars Following Dovish BoJ Policy Meeting
Japanese Yen (JPY) Exchange Rates Tumble as BoJ Cuts Inflation Expectations
The Japanese Yen (JPY) fell back against the Pound (GBP) and the majority of its other peers on Wednesday morning as markets reacted to the Bank of Japan’s (BoJ) first policy meeting of 2019.
It came as little surprise to JPY investors to see the BoJ leave interest rates on hold at -0.1% this month, with the bank having now maintained its negative rates for three years.
However the bank’s accompanying inflation forecasts proved notably more downbeat, with the bank slashing its core inflation expectations to 0.9% for the coming financial year, a significant drop from a previous forecast of 1.4% made just a few months ago.
The BoJ’s policy statement read:
‘On the price front, the momentum towards achieving the price stability target of 2% is maintained but is not yet sufficiently firm, and thus developments in prices continue to warrant careful attention.’
BoJ Governor Haruhiko Kuroda added:
‘It is true that it will take some time for us to achieve the two-percent target, it is our belief that the most appropriate way is to patiently continue the existing monetary easing.’
Some economists are even more downbeat however, with speculation that Japan’s core inflation could even fall below 0% in 2019 amidst slumping oil prices and government stimulus.
Pound (GBP) Exchange Rates Buoyed by Brexit Optimism
At the same time, the Pound (GBP) was able to extend its gains against the Japanese Yen (JPY) on Wednesday as the UK currency enjoyed broad support amidst a wave of positive Brexit sentiment.
This comes as markets become increasingly confident that the UK will avoid a no-deal Brexit after Theresa May’s EU Withdrawal Deal was overwhelming rejected in Parliament last week.
Despite the uncertainty of what will happen next, it appears many GBP investors appear content in the fact the worst-case scenario of the UK crashing out of the EU without a deal is unlikely to happen.
Kathy Lien, managing director of currency strategy at BK Asset Management suggests:
‘The market is now completely discounting the prospect of a hard Brexit, though the political risk still remains in play and volatility is sure to ratchet higher if no clear path is visible to the market.’
The focus will now turn to the upcoming debate on Theresa May’s Brexit ‘Plan B’ and possible amendments made to the plan, with many observers speculating that MPs will seek to wrest control of the Brexit process away from the government.
Such an outcome is expected to be seen as Sterling positive, with analysts forecasting this will likely lead to Brexit being delayed, while even opening the possibility of a second referendum.
However its worth keeping in mind that an extension to Article 50 will also result in uncertainty hanging over the UK economy even longer, potentially capping any upside to the Pound.
GBP/JPY Exchange Rate Forecast: Subdued Manufacturing PMI to Drag on the Yen?
Looking ahead, the Pound Japanese Yen (GBP/JPY) exchange rate may extend its gains overnight on Wednesday as Japan publishes its latest Manufacturing PMI.
Economists forecast that the PMI will reveal activity in Japan’s private sector remain subdued at the start of 2019, likely placing further pressure on the Yen.
Meanwhile, outside of Brexit, movement in the Pound may be driven by the latest UK retail report from the Confederation of British Industry (CBI) in the latter half of the week, with Sterling potentially finding some support if retail activity rebounded in January as predicted.
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TAGS: Pound Yen Forecasts