GBP/JPY flatlines around 205.50 amid BoJ intervention fears

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The Pound posts moderate losses against the Yen on Tuesday, changing hands at 205.20 at the time of writing, halfway through the last few days' trading range.

The Pound wavers around 205.50, lacking a clear bias against the JPY.
Investors remain wary about buying Pounds ahead of the US budget release.
Fears of an upcoming BoJ intervention are keeping Yen sellers in check.

The Pound posts moderate losses against the Yen on Tuesday, changing hands at 205.20 at the time of writing, halfway through the last few days' trading range. Technical indicators show the broader bullish momentum losing steam, amid growing concerns about a BoJ intervention, yet GBP's bearish attempts remain limited so far.

Yen crosses have found some support this week following comments by the Japanese Finance Minister on Friday, who said that the Japanese authorities were alarmed about the fast Yen depreciation and that they are ready to take “appropriate action in response to excess volatility and disorderly movements”.
optimize

The Bank of Japan tends to launch Yen interventions at moments of low market liquidity to optimize its impact. Bearing that in mind, the market is speculating on the possibility that the thinned Thanksgiving market, later this week, would provide a great opportunity.

The Japanese Yen has depreciated 4.5% since early October, when the pro-stimulus cabinet of Prime Minister Sanae Takaichi came into power, and more than 10% since April.

The Pound, on the other hand, remains weighed by flaws of their own. Investors are wary about the sterling, awaiting the details of the Autumn Budget, which is due to be released on Wednesday. Chancellor Rachel Reaves faces the serious challenge of bringing the growing budget deficit under control without breaking the Labour Party’s pledge to “not increase taxes on the working people”.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.