British Pound advances to two-week high as rate gap and fiscal woes undermine Yen
- GBP/JPY attracts fresh buyers on Tuesday and seems poised to appreciate further.
- The wide UK-Japan rate gap and fiscal concerns continue to undermine the JPY.
- GBP bulls now look to Thursday’s UK economic releases for a meaningful impetus.
The GBP/JPY cross climbs to a nearly two-week high, around the 215.35-215.40 area, during the first half of the European session on Wednesday and looks to prolong its recent solid recovery from the lowest level since early March, touched last week.
The Japanese Yen (JPY) has surrendered a substantial portion of its recent strong recovery gains as structural headwinds offset a rare joint US-Japan intervention. Despite the recent Bank of Japan (BoJ) interest rate hike to the highest level since 1995, borrowing costs in Japan remain significantly lower compared to other major economies, including the UK. This keeps the carry trade active, which continues to undermine the JPY and acts as a tailwind for the GBP/JPY cross.
Furthermore, investors remain worried about Japan's worsening fiscal conditions on the back of Prime Minister Sanae Takaichi's aggressive economic stimulus and tax cuts. Adding to this, economic risks stemming from the continued energy disruptions due to the Iran war turn out to be another factor weighing on the JPY, which fails to gain any respite from the possibility of another BoJ rate hike move in September. This, in turn, validates the positive outlook for the GBP/JPY cross.
Traders, however, might refrain from placing aggressive bullish bets on the British Pound (GBP) and opt to wait for the UK macro data dump, including the preliminary Q2 GDP report on Thursday. Nevertheless, the supportive fundamental backdrop suggests that the path of least resistance for the GBP/JPY cross remains to the upside and any corrective pullback is more likely to be bought into.
Japanese Yen Price This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.14% | -0.17% | 1.02% | -0.11% | 0.08% | 0.49% | 0.56% | |
| EUR | -0.14% | -0.32% | 0.83% | -0.36% | -0.13% | 0.25% | 0.33% | |
| GBP | 0.17% | 0.32% | 1.10% | -0.04% | 0.18% | 0.57% | 0.62% | |
| JPY | -1.02% | -0.83% | -1.10% | -0.80% | -0.59% | -0.34% | -0.23% | |
| CAD | 0.11% | 0.36% | 0.04% | 0.80% | 0.22% | 0.47% | 0.72% | |
| AUD | -0.08% | 0.13% | -0.18% | 0.59% | -0.22% | 0.39% | 0.45% | |
| NZD | -0.49% | -0.25% | -0.57% | 0.34% | -0.47% | -0.39% | 0.05% | |
| CHF | -0.56% | -0.33% | -0.62% | 0.23% | -0.72% | -0.45% | -0.05% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
