The pound gained ground against the yen on Friday following the better-than-anticipated UK GDP data for the March 2024 quarter. The data also indicated the UK’s exit from the recession. Japan’s economic data (unemployment rate, industrial production, etc.) surpassed the market’s expectations. However, the unexpectedly positive UK GDP data enabled the pound to gain ground against the yen. Overall, the GBP/JPY pair rallied from a low of 202.55 to a high of 203.60 in the final trading session of last week.
According to Japan’s Statistics Bureau, Tokyo’s core consumer price index (CPI) increased by 2.10% y-o-y in June following a 1.90% rise in the previous month, surpassing forecasts of 2%.
Rising fuel bills and higher import costs from a weak yen led to an increase in inflation.
Excluding fresh food and fuel costs, the consumer price index grew by 1.80% y-o-y in June, following a 1.70% rise in May.
The inflation data may aid the Bank of Japan in contemplating a rate hike this month, as higher input costs from the weak yen increase the probability of inflation remaining considerably above the central bank’s target level of 2% in the months ahead.
In a separate news release, the Statistics Bureau stated that the unemployment rate stood unchanged for the fourth successive month at 2.60% in May, meeting the market’s expectations.
The reported figure remains the highest jobless rate since September 2023, as the count of unemployed individuals inched down by 10,000 in May to 1.92 million. The number of employed people rose by 10,000 in May to hit a three-month high of 67.61 million.
The labor force increased by 10,000 to 69.44 million. Likewise, the labor force participation rate hit an eight-month high of 63.30% in May 2024, up from 62.90% in the comparable period last year. The jobs-to-applications ratio declined to 1.24 in May, reflecting the lowest level in two years, from the previous level of 1.26.
According to the preliminary data published by Japan’s Ministry of Economy, Trade, and Industry (METI), the country’s industrial production rebounded with a growth of 2.80% m-o-m in May after a 0.90% contraction in the previous month, surpassing forecasts of a 2% increase. The reported figure reflects the second increase so far this year. The increase was led by an 18.10% surge in the production of motor vehicles in May. Likewise, electrical machinery and information and communication electronics equipment increased by 5.10% in the same period.
On a y-o-y basis, Japan’s industrial output inched up 0.30% in May 2024, reflecting the first increase in seven months.
According to Japan’s Ministry of Land, Infrastructure, Transport, and Tourism, the country’s housing starts fell by 5.30% y-o-y in May after surging 13.90% in the previous month. Economists had anticipated a decline of 6.10%. The reported figure reflects the fourth decrease so far this year.
In the European session, the Office for National Statistics (ONS) stated that the UK’s economy expanded 0.70% q-o-q in the March 2024 quarter following a 0.30% GDP contraction in the December 2023 quarter, surpassing forecasts of 0.60% growth. The initial estimates pegged the UK’s GDP growth at 0.60%. The reported figure reflects the strongest growth in more than two years, winding up the recession.
The GDP growth was led by a 0.80% increase in services, a notch higher than the 0.70% growth estimated initially. However, the UK’s production sector grew only at 0.60% q-o-q in 1Q 2024, rather than 0.80% reported earlier. Overall, the production sector expanded 1.10% in the March 2024 quarter, slightly lower than the 1.40% growth estimated earlier. The UK’s household spending inched up 0.40% in the reported period.
However, the construction sector declined by 0.60% q-o-q in the March quarter. The value of imports declined by 2.70% in 1Q 2024. Similarly, the value of exports fell by 1%.
On a y-o-y basis, the UK’s GDP grew by 0.30%, a notch higher than the earlier estimate of 0.20%.
The upbeat UK GDP data is expected to keep the pound slightly bullish against its peers, including the yen, in the short term.
Technically, the GBP/JPY pair is ascending after consolidating at 202.55. The currency pair is trading above its 50-day moving average, while the MACD indicator is showing a positive reading. Therefore, we anticipate the GBP/JPY pair to remain in an uptrend for the next few trading sessions.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
