- The GBP/JPY faces down pressure in the midst of growing hard line expectations for BOJ’s policy.
- The 10 -year Japanese government bond performance exceeded 1.5%, reaching its highest level in more than 15 years.
- The sterling pound could recover as the officials of the Bank of England adopt a cautious tone.
The GBP/JPY maintains losses after registering profits in the previous four days, quoting around 191.60 during the first European hours on Thursday. The fall occurs as the Japanese Yen (JPY) is strengthened in response to a hard line of the Bank of Japan (BOJ) about its monetary policy.
The 10 -year Japanese government bond yield shot beyond 1.5% on Thursday, marking its highest level in more than 15 years. This increase was influenced by a broader rebound in the yields of European bonds, after Germany’s announcement of an infrastructure fund of 500,000 million euros and plans to reform the indebtedness rules. These measures are expected to promote growth in Germany, promoting the feeling of investors.
The vice governor of the Bank of Japan, Shinichi Uchida, reaffirmed this week that the Central Bank would consider more increases in interest rates if economic conditions meet expectations. Uchida emphasized that Japan is in the initial stages of leaving its prolonged monetary flexibility policy, pointing out a possible change towards a more restrictive position.
On Thursday, the Vice Minister of Finance of Japan for International Affairs, Atsushi Mimura, addressed concerns about the growing global protectionism, including tariff measures. Mimura highlighted the need to find a balanced approach to mitigate the negative effects of globalization while preventing a total fall in protectionist policies.
The GBP/JPY crossing could recover ground after the caution comments of the officials of the Bank of England (BOE). The governor of the BOE, Andrew Bailey, testifying to the select Treasury committee on Wednesday, declared: “We expect an increase in inflation, but it will not be as a few years ago. I think it is less likely that we have effects of second round inflation due to a weakened economy.”
Meanwhile, the BOE policy head, Megan Greene, also speaking to the Treasury Committee, emphasized a cautious and gradual approach to relieve monetary restrictions. Greene said: “It is likely that the persistence of inflation fades on its own,” reiterating that monetary policy will probably need to remain restrictive.
The chief economist of the BOE, Huw Pill, also addressed the legislators in Parliament, stating: “We need to remain vigilant to new clashes that could harm the way back to an inflation of 2%. Evidence point against faster cuts in banking fees for me.”
US interest rates
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
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.
