Home Forex Market Analysis GBP/JPY: Pound Surges as Japan Downgrades Economic Assessment

GBP/JPY: Pound Surges as Japan Downgrades Economic Assessment

GBP/JPY: Pound Surges as Japan Downgrades Economic Assessment
  • The Japanese government downgraded the country’s economic assessment due to low consumption into May 2021. 
  •  Japan expected higher supermarket sales due to increased sales of home appliances. 
  • The UK is expected to select more effective vaccines to combat new Covid19 variants. 

The GBP/JPY inched up +1.21% after closing at 155.95 on May 27, 2021, from the previous day. April 2021 saw Japan’s unemployment rate jump to 2.8% (month-on-month) from the previous record of 2.6%. It exceeded estimates at 2.7%. 

The ratio for job applications also declined to 1.09 from a previous record of 1.10 for the same month. Meanwhile, Tokyo’s core CPI for May 2021 (year-on-year) was maintained at -0.2%, and the CPI stood at -0.4%, similar to April 2021. 

Downgraded Economic assessment

The Japanese government downgraded its vital economic assessment on May 26, 2021, due to a declining consumption rate, the first time in 3 months.  The extended state of emergency led to these low levels due to movement restrictions over the spread of Covid-19 variants. 

The country is reeling from the effects of the third state of emergency that was scheduled to end on May 11, 2021. 

Business recovery was also said to have paused as services maintained a sluggish tone despite a solid expenditure on goods. 

Japan’s retail sales

Japan’s retail sales

Japan is likely to see a decline in retail sales that hit a high of 5.2% in March 2021 (year-on-year). However, supermarket sales surged 6.0% in April 2021 (year-on-year) on a same-store basis. Clothing sales jumped 74.3%, while home appliances soared 52.6% (fueled by increased sales of display TVs) as people spent more time at home. 

Data from the Japan Chain Stores Association (JCSA) shows supermarket revenues in Japan reached 1.08 trillion yen ($9.9 billion) in April 2021. However, the saving-oriented economic structure may negatively influence overall retail sales as it reduces consumption in Japan. 

The Bank of Japan (BOJ) was under fire to remove the ETF purchases target of JPY6 trillion ($55 billion) annually, but it still maintained an upper purchase limit of JPY12 trillion. The BOJ intends to increase its ETF holdings in an attempt to raise inflation towards the 2% goal. The main worry here is that the removal of the six trillion-yen purchase target may cause asset purchases to be tapered. 

UK Covid-19 infections and economy outlook

UK’s Covid-19 daily new infections as of May 26, 2021, rose to 2,987 while deaths increased to 2,539, up from 0 new cases on May 18, 2021.

Covid-19 cases in the UK

Covid-19 cases in the UK

After surpassing its vaccination milestone of 60 million doses (at least 762,000 per day), the UK is looking towards increasing effectiveness in fighting new variants to prevent the surge in cases. The dominance of the new B16172 variant in the UK may delay Britain’s emergency from the lockdown. 

AstraZeneca’s vaccines were 66% effective against the B117 variant and 60% effective against the B16172 variant. Pfizer was 93% effective against the B117 and 88% effective against the B16172 variant. 

The UK is, however, doing well in terms of economic recovery despite writing off state-backed loans to companies worth £26 billion ($37 billion). Projections as of March 2021 indicate that the UK economy would grow at a range of 4-6% in 2021. The government’s expenditure to combat Covid-19 at £372 billion is also considered reliable due to the success of the vaccination program. 

Technical Analysis

The GBP/JPY is moving above its 10-day EMA and MA crossover point at 154.394 and 153.702. 

GBP/JPY trading analysis

GBP/JPY trading analysis

After surpassing the support line at 148.520, the pair is now moving towards the key trading level of 157.000. The 14-day RSI is at 78.60, indicating increased buying activity among traders.  


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