Victoria Bazir
The British pound is increasing in value relative to the Japanese yen. With the GBP/JPY pair, the price is up by about 0.63%. In the most recent session, this change is larger than the changes for most other large currency pairs.
As a general trend in currency markets, currencies that respond to risk are more valuable than currencies that are considered safe. For the UK, economic expectations are steady and prices are rising at a constant rate. By contrast the yen is losing value because the monetary policy in Japan is very loose.
On the list of major currencies, the Japanese yen is among those with the least value. It is falling against the pound and also against other G10 currencies. Due to the differences in yields, investors prefer currencies that have higher interest rates.
But the pound is strong because people expect the Bank of England to keep interest rates high for a long time. In Japan, the central bank keeps conditions easy for borrowing.
To understand this movement, one must look at how the two central banks differ. If this gap in policy stays the same, the GBP/JPY pair will be sensitive to global feelings about risk and what people expect for interest rates.
For traders the strength of the GBP/JPY pair shows that individuals want to use carry trades. In the trades investors borrow money in currencies with low interest rates like the yen and put it into assets that pay more. And yet the trend might change quickly if investors begin to avoid risk.
There is an imbalance in the foreign exchange market - it is clear that the differences in policy and the movement of money are what make currencies perform the way they do.
Victoria Bazir
