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As UK and Japan Interest Rate Expectations Converge, the GBP/JPY Trades Lower
As UK-Japan interest rates are anticipated to converge, the GBP/JPY declines. Falling inflation is anticipated to result in reduced interest rates in the United Kingdom. An upward trend in inflation in Japan is progressively anticipated to result in increased interest rates.
The exchange rate is weighed on Friday by converging UK-Japan interest rate expectations, which reduce the advantage for investors of holding the Pound Sterling (GBP) over the Japanese Yen (JPY). As a result, GBP/JPY trades a tenth of a percent lower at just above 191.000.
Optimistic inflation expectations in the United Kingdom have prompted investors to anticipate a possible interest rate cut by the Bank of England (BoE) in June. The depreciation of the pound sterling can be attributed to the tendency for decreased foreign capital inflows following a reduction in interest rates.
On the contrary, at its March meeting, the Bank of Japan raised interest rates from an abnormally low level of negative 0.1%. Numerous investors speculated whether the rate hike was an isolated incident or the beginning of a series of increases that could eventually strengthen the Yen.
Governor Ueda of the Bank of Japan (BoJ) appeared to imply in a recent interview with the Asahi Shimbun that further increases in interest rates are probable in light of the rapid acceleration of inflation.
Ueda predicted that the favorable outcomes of the spring wage negotiations in Shunto would be manifested in wage increases during the summer, followed by an increase in consumer prices in the latter part of the year.
"Given annual wage talks outcome so far, trend inflation is likely to gradually accelerate," Ueda indicated.
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