It is only a week ago that the world was on Singapore for the historic summit between the North Korean Leader and American President. As talks progressed well between the pair, the Yen lost value. Japanese events have a limited effect on currency but geopolitics certainly do with the Yen’s role as a safe-haven currency. Should US-DPRK relations at any point in the upcoming future, keep an eye on the Yen as it should strengthen. The table below shows the range of GBPJPY exchange rates during trading last month, and the differenece in JPY this equates to depending on when you traded.
|Currency Pair||% Change||Difference on £200,000|
Last Friday the Bank of Japan announced its latest interest rate decision which aligned with expectations of -0.1%. This figure has been unchanged since January 2016.
There are two reasons why the Bank of Japan (BoJ) imposes low interest rates. Number one is to encourage borrowing, spending and investment and number two is to make it easier for the Japanese government to afford interest payments after years of deficit spending by the government.
The Japanese Yen has started the week with small gains against its major currency counterparts. For example, GBPJPY has started the week at a loss, falling lightly from 147.0 to 146.5 in this morning’s trading. Year on year import and export data for May shows that Japan has been increasingly participating in international trade and justifies the Yen’s strength at the week’s market opening. It is worth noting that the Japanese economy is heavily reliant on exports and operates with a trade deficit and has every interest to strive towards free trade agreements with economies abroad.
Tomorrow the Bank of Japan releases its meeting minutes from last Friday. These may reveal some frustration and an ongoing pledge to continue with the loose monetary policy until core inflation reaches the 2% target.
On Wednesday BoJ governor Haruhiko Kuroda will make a frequent public appearance. He does not usually give much away, plus it is difficult to see what news might shift the markets given to change in policy has been made. Nevertheless, he may provide surprises.
The trend of protectionist policies – stemming from the USA – does not seem to have hit Japan yet. This is a positive given the aforementioned dependence on international trade.
As other developed nations impose tariffs on each other, they could turn to Japan to preserve some free trade. Much like when Russia benefited in the 1930’s from tariffs between the USA and Europe, Japan could benefit from the current international climate.
It is difficult to predict Yen rates, so if you do have a Yen requirement, it may be worth exploring your contract options to secure your exchange rate in advance or to not trade below a certain rate. If you’d like to hear more about our contract options, give us a call on 01494 787484. You can also send me an email here.
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