- GBP/JPY gains strength to around 193.10 in early European trading on Thursday.
- Uncertainty over BoJ interest rate path undermines JPY.
- BoE’s Greene said she prefers a cautious approach to cutting interest rates.
The GBP/JPY pair extends the rally to near 193.10 during the early European session on Thursday. The prospect that the Bank of Japan (BoJ) would further delay raising interest rates this year weighs on the Japanese Yen (JPY). Traders will be keeping an eye on Japan’s Tokyo Consumer Price Index (CPI) for September, due out on Friday.
JPY loses momentum after BoJ Governor Kazuo Ueda signaled that the Japanese central bank is in no hurry to raise interest rates. According to BoJ meeting minutes released on Thursday, policymakers were divided on how quickly the central bank should further raise interest rates, citing uncertainty over the timing of the next increase in borrowing costs. Several board members noted that it would be “appropriate” for the central bank to “start gradually adjusting the significantly low policy interest rate.”
On the other hand, growing speculation that the Bank of England (BoE) rate-cutting cycle is more likely to be slower than previously expected provides some support to the British Pound (GBP). BoE Governor Andrew Bailey said he was “very encouraged” by the downward trajectory of inflation and expected the interest rate path to be gradually lower. Meanwhile, BoE policymaker Megan Greene said on Wednesday that she prefers a “cautious approach” to cutting interest rates, warning of the risks to strong wage growth and economic activity.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the spread between Japanese and US bond yields, and risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key to the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to political concerns of its major 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 currency peers. This process has been exacerbated more recently by a growing policy divergence between the BoJ and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.
The Bank of Japan’s stance of maintaining an ultra-loose monetary policy has led to an increase in policy divergence with other central banks, in particular with the US Federal Reserve. This favours the widening of the spread between US and Japanese 10-year bonds, which favours the Dollar against the Yen.
The Japanese Yen is often considered a safe haven investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency due to its perceived reliability and stability. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
