British Pound remains weaker against Japanese Yen following UK economic data

UK Gross Domestic Product grew by 0.4% month-over-month in July, beating expectations of flat growth.
UK Manufacturing production increased by 0.9% in July, boosting broader economic output data alongside industrial production.
Japanese Yen gains support from Bank of Japan tightening expectations despite escalating oil price risks.

Akhtar Faruqui FXStreet

GBP/JPY depreciates after registering gains in the previous day, trading around 208.30 during Asian hours on Friday. The currency cross loses ground as the British Pound (GBP) remains subdued against the Japanese Yen (JPY) following the release of key economic data from the United Kingdom (UK).

The UK Office for National Statistics (ONS) reported on Friday that the UK Gross Domestic Product (GDP) grew by 0.4% month-over-month in July, outperforming market expectations for a flat 0% growth and building upon the 0.3% expansion recorded in June. In addition to the strong GDP figures, broader economic output data showed positive momentum, with monthly Industrial Production rising by 0.2% and Manufacturing Production increasing by 0.9% over the same period.

Meanwhile, the Japanese Yen (JPY) continues to draw support from growing expectations of more aggressive policy tightening by the Bank of Japan (BoJ), alongside the ongoing unwinding of carry trades and increased capital repatriation. However, the currency's upside potential remains constrained. Surging oil prices, fueled by persistent conflict between the US and Iran with no signs of de-escalation, are keeping global inflation risks elevated and weighing on broader market sentiment.

BoJ seen lifting rates again as ING flags persistent price pressures

Economists at ING expect the Bank of Japan to press ahead with further policy normalisation this week, forecasting that the BoJ will “raise its policy rate by 25bp to 1.25% on Friday amid persistent price pressures.” They argue that ongoing inflation dynamics justify another step away from ultra-loose settings, reinforcing expectations that Japan’s rate cycle is gradually shifting onto a more conventional tightening path.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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