- GBP/JPY holds losses as the Japanese Yen advances, driven by stronger Tokyo’s core inflation.
- The JPY gained support amid increased safe-haven demand after the US appeals court put on hold the decision to invalidate Trump’s sweeping tariffs.
- The International Monetary Fund increased the UK GDP growth forecast for the current year to 1.2% from 1.1%.
GBP/JPY extends its losses for the second successive session, trading around 194.00 during the European hours on Friday. The Japanese Yen (JPY) appreciates against its peers, weighing on the currency cross, after Tokyo’s core inflation posted a stronger-than-expected data, reinforcing the odds of the Bank of Japan’s (BoJ) 25 basis point rate hike in July.
On Friday, the Tokyo Consumer Price Index (CPI) increased 3.4% year-over-year in May, slightly softer than the previous 3.5% rise. Meanwhile, Tokyo Core CPI excluding Fresh Food came in at 3.6% YoY, following a 3.4% increase in April. The index has surpassed median market forecasts for a 3.5% gain.
The JPY also received support from the safe-haven flows after the US Court of Appeals for the Federal Circuit in Washington on Thursday temporarily allowed Trump’s tariffs to take effect, holding a decision by a three-judge panel at the Court of International Trade in Manhattan.
On Wednesday, the federal court condemned Trump’s usage of the Carter-era International Emergency Economic Powers Act (IEEPA) to justify his international agenda, quoting it as exploitation of the president’s authority. The federal court found that Trump exceeded his authority in imposing broad import tariffs and declared the executive orders issued on April 2 unlawful.
The downside of the GBP/JPY cross could be restrained as the Pound Sterling (GBP) may receive support as the International Monetary Fund (IMF) raised the United Kingdom (UK) Gross Domestic Product (GDP) growth forecast for the current year to 1.2% from 1.1%.
The GBP also gains from the weakening of the probability of the Bank of England (BoE) reducing interest rates again in the June policy meeting. The hotter-than-expected UK Consumer Price Index (CPI) and a robust growth in the UK Retail Sales data for April weakened the dovish bets surrounding the Bank of England’s (BoE) policy outlook.
(This story was corrected on May 30 at 08:48 GMT to say, in the second bullet, that a US appeal court put on hold a trade court’s decision to void Trump’s tariffs, effectively reinstating them. An earlier version of the story incorrectly stated that the appeal court had decided to block the tariffs.)
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.