British Pound retreats against Japanese Yen as Japan vows debt control

The British Pound (GBP) slumps 0.3% to near 208.40 in the European trade on Monday after a flat opening at around 209.10. The cross comes under pressure as the Japanese Yen gains after Japanese Prime Minister (PM) Takaichi Sanae signaled that the government will exercise tight control on debt issuance.

“We will control the annual debt issuance amount appropriately while scrutinising the economy, prices, tax revenues, interest rates, debt-servicing costs, and market developments,” PM Takaichi said.

The remarks from Japan PM Takaichi regarding controlled debt issuance have improved the safe-haven appeal of the Asia-Pacific currency at a time when the Euro (EUR) faces immense selling pressure due to heightened French fiscal risks.

Japan PM Takaichi’s comments on fiscal policy pointing to moderate debt growth have brought a slight relief for bondholders. At press time, 10-year yields on Japanese bonds are slightly down to near 3.08%, but are still close to its all-time high of 3.13% posted last week.

On the monetary policy front, hotter-than-projected Tokyo Consumer Price Index (CPI) data for September, released on Friday, has prompted the hopes of further Bank of Japan (BoJ) tightening in the near term.

Japan inflation data keeps BoJ on policy

Analysts at MUFG/BTMU note that the latest inflation release Japan has kept market attention firmly on underlying price pressures. MUFG/BTMU highlight that "headline Tokyo CPI, which serves as a leading proxy for nationwide inflation, accelerated to 2.7%yoy in September, above the 2.5% consensus and 1.9% in August." Moreover, underlying price momentum strengthened notably, with "core Tokyo CPI excluding fresh food and energy" rising "markedly to 3.0%yoy, above the 2.5% consensus and 2.0%yoy in August, marking its highest reading under the Takaichi administration."

MUFG/BTMU judge that these readings "should keep the BoJ attentive to inflation and the need for policy tightening," reinforcing the focus on how evolving price dynamics may shape the policy stance in Japan.

Meanwhile, the British Pound is broadly under pressure, except against the Euro (EUR), amid doubts regarding whether the Bank of England (BoE) will hike interest rates in the November policy meeting.