GBP/JPY draws some sellers near 188.00 as BoJ official signals more rate hikes

VaselineSeptember 5, 2024

0 2 minutes read

GBP/JPY draws some sellers near 188.00 as BoJ official signals more rate hikes

GBP/JPY is weakening around 188.15 in the first European session on Thursday, down 0.45% on the day.
BoJ official leaves door open for further interest rate hikes, lifting Japanese yen.
Upbeat UK services PMI could help limit GBP losses.

GBP/JPY is trading in negative territory for a third straight day near 188.15 during Thursday’s European session. The Japanese yen (JPY) is strengthening as the report on real wage growth in Japan reinforces market expectations for further increases in borrowing costs.

Data released by the Ministry of Health, Labor and Welfare showed on Thursday that Japan’s labor cash income rose 3.6 percent from a year ago in July, compared with a 4.5 percent increase in June, beating the estimate of 3.1%. This upbeat reading prompted speculation that the Bank of Japan (BoJ) will implement another interest rate hike before the end of 2024.

BoJ board member Hajime Takata said on Thursday: “If the economy and prices move in line with our forecast, we will adjust policy rates in several stages.” Takata also said that the Japanese economy has recovered moderately, although some weak signs have been seen.

On the other hand, interest rate cut expectations by the Bank of England (BoE) are weighing on the British Pound (GBP) against the JPY. According to data on money market prices, the BoE is expected to cut interest rates once more this year, leaving borrowing costs at 4.75%. However, the release of the latest UK PMI services could support the GBP and limit downside for the cross. S&P Global showed that the UK services PMI for August accelerated at the fastest pace since April.

Frequently Asked Questions about the Japanese Yen

The Japanese yen (JPY) is one of the most traded currencies in the world. Its value is largely determined by the performance of the Japanese economy, but more specifically by Bank of Japan policy, the difference between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the yen. The BoJ has intervened directly in currency markets on occasion, generally to depress the yen, although it refrains from doing so because of the political concerns of its main trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the yen to depreciate against its major peers. This process has been exacerbated more recently by a widening policy divergence between the Bank of Japan and other major central banks, which have opted to raise interest rates sharply to fight decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This supports a widening of the spread between US and Japanese 10-year bonds, which favors the US dollar against the Japanese yen.

The Japanese yen is often seen as a safe investment. This means that during periods of market stress, investors are more likely to put their money into the Japanese currency due to its supposed reliability and stability. Troubled times are likely to strengthen the value of the yen against other currencies considered riskier to invest in.

VaselineSeptember 5, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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