GBP/JPY picks up above 213.00 on another suspected Japan intervention

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The Pound (GBP) has turned positive on the daily chart against the Japanese Yen (JPY) on Friday, trading at levels a few pips above 213.00 at the time of writing, up from session lows at 211.78 earlier in the day.

GBP/JPY returns to levels beyond 213.00 after bouncing from 211.78 lows earlier on Friday.
The Yen spiked up during the early European session amid another alleged intervention by Japan.
The BoE warned about the complicated combination of high inflation and lower growth.

The pair plunged about 200 pips without any clear fundamental reason during the early European trading session, with all Yen pairs depreciating simultaneously in what is likely to be the second intervention by the Japanese Ministry of Finance (MOF) in the last two days.

A senior Japanese official had warned markets that Tokyo could act again, taking advantage of thinned trading volumes due to the May 1 Labour Day holiday, to enhance the impact, as Japan heads into the Golden Week holidays.

The pair dropped a maximum of nearly 600 pips on Thursday, although it managed to regain almost half of the lost ground by the end of the day. The Yen surged across the board, also without a clear fundamental reason to justify it, after the USD/JPY crossed the 160.00 line, a key level considered a trigger for action by the Japanese authorities.

In the UK, the Bank of England (BoE) left its benchmark interest rate on hold at the current 3.75% rate with 8 votes to 1, and Governor Andrew Bailey warned about the “most difficult combination,” referring to higher energy prices and weakening economic growth. The Pound, however, appreciated against its main currency peers following the event.

BoE FAQs

What does the Bank of England do and how does it impact the Pound?

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

How does the Bank of England’s monetary policy influence Sterling?

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

What is Quantitative Easing (QE) and how does it affect the Pound?

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

What is Quantitative tightening (QT) and how does it affect the Pound Sterling?

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.