GBP/JPY climbs back into positive territory after Japanese wage data misses estimates

GBP/JPY climbs back into positive territory just above 194.00 on Tuesday, as the Pound Sterling (GBP) makes a mild recovery against the Japanese Yen (JPY) which depreciates after the release of lower-than-expected Japanese wage data for August. 

Japanese Labor Cash Earnings rose 3.0% in August on a year-over-year basis, which is lower than the 3.1% estimated by economists, and the 3.4% in July (revised down from 3.6%), according to data from the Ministry of Economy, Trade and Industry of Japan. 

The lower-than-estimated rise in wages is mildly disinflationary and therefore likely to curb the chances of the Bank of Japan (BoJ) deciding to raise interest rates from their comparatively low 0.25% level. Interest rates remaining lower for longer will result in less foreign capital inflows to Japan, a reduction in demand for the Yen and a weaker currency. This, in turn, leads GBP/JPY to edge higher.

The Pound, meanwhile, regains its feet after the Chief Economist at the Bank of England (BoE) Huw Pill, said any future rate cuts by the bank should be made cautiously. This, in turn, helps GBP/JPY retain the upside. Prior to that Sterling had been selling off after his colleague, the Governor of the BoE Andrew Bailey, said the bank should become more “activist” in cutting interest rates, thereby suggesting more frequent or larger cuts might be on the horizon. 

GBP/JPY is in an overall short-term uptrend, as the Yen faced additional headwinds after the new Prime Minister Shigeru Ishiba said that interest rates should probably keep at their current low level because of the state of the economy. His comments struck a note of discord with those of the Governor of the BoJ Kazuo Ueda, who had said interest rates should rise if the incoming economic data continued to match forecasts. Ishiba later backtracked, saying that this did not mean he would put pressure on the BoJ in its decision-making process, relieving some of the bearish pressure on the currency. 

Overall the Yen is seen as still too weak because it makes imported goods expensive for consumers, and this led currency diplomat Atsushi Mimura to make a “verbal intervention” on Monday cautioning traders against “speculative moves”. That said, one factor putting a floor under the Yen’s devaluation is continued demand for it as a safe-haven amid an escalation of the conflict in the Middle East.