GBP/JPY rebounds to near 193.50 as BoE Pill warns caution on interest rate cuts
- GBP/JPY recovers from 192.00 as the Japanese Yen loses strength on potential US-Japan trade talks.
- Japan’s Akazawa is scheduled to visit Washington later this week.
- Investors await the UK CPI data for fresh cues on the BoE’s monetary policy outlook.
The GBP/JPY pair attracts bids near 192.00 and flattens around 193.50 during North American trading hours on Tuesday. The cross bounces back as the Japanese Yen (JPY) loses strength after Tokyo announced the meeting with Washington this week for the third-round trade talks.
Earlier in the day, Japan’s Kyodo News agency reported that top trade negotiator Ryosei Akazawa will visit Washington for trade discussions later this week. Later in the European session, the news agency also reported that Japan is mulling accepting lower US tariff rates, and not demanding an exemption.
Meanwhile, the Pound Sterling (GBP) trades calmly ahead of the United Kingdom (UK) Consumer Price Index (CPI) data for April, which will be released on Wednesday. According to the estimates, the UK headline CPI rose at a robust pace of 3.3%, compared to 2.6% in March. The core CPI – which strips off volatile components such as food, energy, alcohol, and tobacco – accelerated to 3.6% from the prior release of 3.4%.
Signs of hot UK inflation data would discourage Bank of England (BoE) officials from cutting interest rates again in the June meeting. The BoE reduced its borrowing rates by 25 basis points (bps) to 4.25% and guided a “gradual and cautious” monetary policy expansion approach.
Meanwhile, BoE Chief Economist Huw Pill has advised caution on interest rate cuts. Pill stated during European trading hours that “inflation pressure indicators give me cause for concern”. Pill was one of two BoE policymakers who voted to leave interest rates unchanged.
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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