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GBP/JPY attracts some buyers above 193.00, focus shifts to Tokyo CPI data

  • GBP/JPY gathers strength to around 193.10 in Thursday’s early European session. 
  • The uncertainty about the BoJ's interest rate path undermines the JPY. 
  • BoE’s Greene said she prefers a cautious approach to cutting interest rates. 

The GBP/JPY cross extends the rally to near 193.10 during the early European session on Thursday. The prospect that the Bank of Japan (BoJ) would delay raising interest rates further this year weighs on the Japanese Yen (JPY). Traders will keep an eye on Japan’s Tokyo Consumer Price Index (CPI) for September, which is due on Friday.  

The JPY loses momentum after BoJ Governor Kazuo Ueda signalled that the Japanese central bank is not in a rush to raise interest rates. According to the BoJ meeting minutes released on Thursday, policymakers were divided on how quickly the central bank should raise interest rates further, citing uncertainty on the timing of the next increase in borrowing costs. Several board members noted it would be "appropriate" for the central bank to "start gradually adjusting the significantly low policy interest rate."

On the other hand, the growing speculation that the Bank of England's (BoE) rate-cutting cycle is more likely to be slower than previously expected provides some support to the Pound Sterling (GBP). BoE Governor Andrew Bailey said he was “very encouraged” by the downward path of inflation, and he expected the path for interest rates will be downwards gradually. Meanwhile, BoE policymaker Megan Greene said on Wednesday that she prefers a “cautious approach” to cutting interest rates, warning of the risks from strong wage growth and economic activity.

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 current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

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 supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

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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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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