GBP/JPY

Currencies // Developed Markets

• Background

  The UK pound or sterling (GBP) is the currency of the UK and is the world’s oldest currency still in use. It is the fourth most traded currency after the US dollar, yen and euro. It is one of the top five reserve currencies held by central banks around the world. With the breakdown of the Bretton Woods system the pound has floated from 1971 and has depreciated ever since. A flirtation with fixed exchange rates in the late 1980s and early 1990s ended disastrously with UK’s the exit from the Exchange Rate Mechanism in 1992, as interest rates soared. The Japanese yen (JPY) is the currency of Japan. The yen is the third most traded currency in the foreign exchange market after the US dollar and the euro. It is widely viewed as a reserve currency after the US dollar, euro and UK pound. The yen was adopted in Japan in May 1871. As part of the Bretton Woods system the value of the yen was fixed at ¥360 per US$1.This was maintained until 1971 when the US abandoned the gold standard. As part of the Smithsonian Agreement, the new rate was set at ¥308, but this still caused massive trade imbalances, and in 1973 the rates were abandoned and the yen floated. The yen continued to rise apart from brief dips due to the oil crises in 1973 and 1979. The 1985 Plaza Accord, which re-valued the dollar, prompted the yen to steadily increase in value, slowly shrinking the current account surplus that Japan enjoys with the rest of the world. The Bank of England is the central bank of the UK, and acts as the banker of the UK government. Also known as ‘The Old Lady’ it is responsible for stable prices and confidence in the currency. It tries to do this by meeting the government’s inflation target. It is also responsible for financial stability by way of its monitoring systems and works with the UK Treasury to secure this. It no longer has oversight of the regulation and supervision of the banking industry as this is now overseen by the FSA (Financial Services Authority). The central bank of Japan is the BoJ or Bank of Japan. It was founded in 1882 and has sole responsibility for controlling the money supply. In 1997 the Bank of Japan Act set out the Bank's objectives ‘to issue banknotes and to carry out currency and monetary control’ and ‘to ensure smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of stability of the financial system.’

• Influencing Factors

  Factors affecting the value of the pound are economic indicators including the level of interest rates, trade balance, unemployment, price inflation and GDP. The value of sterling is also affected by the prices of coal and oil and other commodities like aluminium, a key component in the small UK automotive industry, as well as other base metal prices. Factors affecting the value of the yen are economic indicators including the level of interest rates, trade balance, unemployment, price inflation and GDP. The value of its currency is also affected by the price of coal and oil and other commodities like aluminium, which is a key component in the car industry and other base metal prices.