- GBP/JPY weakens around 188.15 in early European trading on Thursday, down 0.45% on the day.
- BoJ official leaves door open for further rate hikes, strengthening Japanese yen.
- Upbeat UK services PMI could help limit GBP losses.
The GBP/JPY pair is trading in negative territory for the third consecutive day near 188.15 during the early European session on Thursday. The Japanese Yen (JPY) is strengthening as the report on rising real wages in Japan reinforces market expectations of further increases in borrowing costs.
Data released by the Ministry of Health, Labor and Welfare on Thursday showed that cash earnings from labor in Japan rose 3.6% year-on-year in July, compared with a 4.5% increase in June, beating the estimate of 3.1%. This upbeat reading has raised speculation that the Bank of Japan (BoJ) would 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 added that the Japanese economy recovered moderately, although some signs of weakness were seen.
On the other hand, expectations of interest rate cuts by the Bank of England (BoE) are weighing on the British Pound (GBP) against the JPY. According to money market price data, the BoE is expected to cut interest rates once again this year, leaving borrowing costs at 4.75%. However, the release of the latest UK Services PMI could support the GBP and limit the cross’s downside. S&P Global showed that the UK Services PMI for August accelerated at its fastest pace since April.
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 fight 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.
