During the European hours on Tuesday, the GBP/JPY pair traded around 184.50, bouncing back from its lowest level of 180.10 since January recorded on Monday. However, the cross faced challenges as the Japanese Yen (JPY) strengthened due to expectations of further monetary policy tightening by the Bank of Japan (BoJ).
Japan’s Chief Cabinet Secretary Yoshimasa Hayashi announced that wage increases are expected to extend to part-timers and small businesses by autumn, supported by strong Shunto results and minimum wage hikes. This comes as Japan’s Labor Cash Earnings rose by 4.5% year-on-year in June, the highest increase since January 1997.
On the other hand, the Pound Sterling (GBP) experienced pressure from sluggish market sentiment, dampening the appeal of risk-sensitive currencies. The growing tensions in the Middle East and fears of an economic slowdown in the United States have boosted the demand for safe-haven assets like the Japanese Yen, weakening the GBP/JPY cross.
Moreover, the Bank of England (BoE) cut its rate by 25 basis points at its August meeting, further adding to the challenges faced by the British Pound. Despite the rise in BRC Like-For-Like Retail Sales in the UK in July, traders are waiting for the S&P Global/CIPS Construction PMI for July to gauge the business activity in the construction sector.
Central Banks FAQs
Central banks play a crucial role in maintaining price stability in a country or region by managing inflation or deflation. They use tools like adjusting interest rates to control the demand for goods and services. When interest rates are raised, it’s called monetary tightening, and when they are lowered, it’s called monetary easing. Central banks aim to keep inflation close to 2% by tweaking their policy rates.
Central banks are often independent and have members with different views on monetary policy. ‘Doves’ prefer a loose monetary policy to boost the economy, while ‘hawks’ prefer higher rates to control inflation. The chairman or president of the central bank leads meetings and communicates the monetary stance to the markets. Members are in a blackout period before policy meetings to prevent market disruptions.