- GBP/JPY softens to around 195.00 in Friday’s early European session.
- UK Retail Sales climbed 1.0% MoM in February, stronger than expected.
- Tokyo CPI inflation exceeded forecasts, keeping the BoJ on the rate hike path.
The GBP/JPY cross weakens to near 195.00 during the early European session on Friday. The stronger UK economic data fails to boost the Pound Sterling (GBP) against the Japanese Yen (JPY).
Data released by the Office for National Statistics (ONS) showed on Friday that the UK Retail Sales increased 1.0% MoM in February versus a rise of 1.7% in January. This figure came in above the market consensus of a decline of 0.3%. On an annual basis, Retail Sales jumped 2.2% in February compared to a rise of 0.6% (revised from 1.0%) prior, better than the estimation of 0.5%. The GBP remains weak in an immediate reaction to the upbeat UK Retail Sales data.
On the JPY’s front, the cost of living in Tokyo rose more than expected from the previous month, keeping the Bank of Japan (BoJ) on track for further interest rate hikes. This, in turn, could underpin the Japanese Yen against the GBP. Data released earlier this Friday showed that the headline Consumer Price Index (CPI) in Tokyo climbed 2.9% in March from 2.8% in February. Additionally, Tokyo Core CPI, which excludes volatile fresh food prices, rose to 2.4% during the reported month from 2.2% in February.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential 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 directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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