GBP/JPY finds support at the 204.90 area and returns to 205.40

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The Pound is trimming previous losses and returns to the mid-range of the 205.00s after a sharp pullback to session lows at 204.80 earlier on the day.

The Pound returns to 205.40 against the Japanese Yen after hitting lows near 204.90.
The Yen jumped earlier on Friday, following intervention threats by Finance Minister Katayama.
Higher Japanese CPI figures keep hopes of BoJ tightening alive.

The Pound is trimming previous losses and returns to the mid-range of the 205.00s after a sharp pullback to session lows at 204.80 earlier on the day. The Yen has bounced up across the board following Japanese Finance Minister Satsuki Katayama's comments, complaining about unwanted Yen weakness.

Katayama affirmed in a news conference on Friday that Japanese authorities are alarmed by “recent one-sided, sharp moves in the currency market," and that they are ready to take “appropriate action” against excessive volatility, which has been seen as a clear warning of intervention.

The Yen sold earlier in the week, with the GBP/JPY rallying more than 1% over the past four days. News that Prime Minister Takaichi was assembling a 21.3 trillion Yen (USD 135.40 billion) stimulus package to help households cope with increasing inflationary pressures boosted concerns of a fiscal crisis and triggered a “Sell Japan” trade.

Meanwhile, Japanese data released on Thursday revealed that consumer prices ticked up to three-month highs, at a 3.0% year-on-year rate in October, from 2.9% in September. These figures are keeping hopes of a December BoJ rate hike alive, despite the pressures of the government to maintain an expansive policy, and provided additional support to the Yen.

In the UK, recent macroeconomic data have not been particularly supportive. Retail Sales fell 1.1% in October against expectations of a flat reading, and following a 0.7% gain in September. The market is now awaiting November's preliminary PMI figures that, barring a positive surprise, are not expected to cheer investors.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact 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.