The Pound Sterling to Japanese Yen exchange rate spiked during Tuesday’s session as investors reacted to warnings from the Japanese Finance Minister. However, mixed UK trade deficit news dented the Pound’s advances, leaving GBP/JPY unlikely to maintain its new weekly high of 157.8441.
Mixed UK Trade Deficit Sees Pound (GBP) Fluctuate
The Pound slipped last week as poor PMI data increased concerns of slowing British growth. However, investors eager for profit-taking sought the Pound on Tuesday amid mixed UK trade balance reports and a weakening Yen.
Britain’s goods trade deficit narrowed more-than-expected in March, from £-11.420b to £-11.200b. The total trade deficit also lightened considerably, from £-4.30b to £-3.83b.
However, according to the Office for National Statistics (ONS) the trade deficit was worse overall in Q1 2016 than in Q4 2015, widening by over £1b.
News that the deficit had in fact hit its worst levels since 2008 in Q1 2016 damaged the Pound’s advances, taking it a little lower after its bullish morning against the Yen.
Yen (JPY) Confidence Drops as Japan’s Finance Minister Warns against Volatility
The Japanese Yen dropped against many major rivals this week after a series of warnings from Japanese Finance Minister Taro Aso implied that the Japanese government is prepared to intervene in the foreign exchange market.
Aso stated on Monday morning that excessive shifts in the Yen are undesirable for the Japanese economy, adding that authorities may begin to intervene in currency trade in order to keep the Yen steady.
He reiterated this threat on Tuesday, causing additional weakness in the Yen as investors took his repeated warnings seriously.
Mixed Japanese Data Prevents Yen from Holding Ground
Japanese data released on Monday also revealed that consumer confidence was down to 40.7 in April, falling from March’s score of 41.7. While this score was above some estimates, the overall drop dented the Yen’s strength.
Labour cash earnings, on the other hand, improved from 0.7% to 1.4%. Positive data was unable to boost the Yen however, as markets reacted to the Bank of Japan’s (BoJ) latest meeting minutes. The report revealed that policymakers were split on whether or not to cut rates.
The Yen had previously soared in response to April’s BoJ meeting, which shocked investors by keeping key rates frozen.
GBP/JPY Exchange Rate Forecast
Yen weakness may continue in the short term as investors continue to react to Finance Minister Taro Aso’s intervention warnings. However, analysts believe that so long as the Yen remains higher than 105 Yen per US Dollar, intervention is unlikely.
Wednesday sees the release of UK industrial and manufacturing production reports, which could slow the Pound’s rally if they print below expectations.
On the other hand, the Japanese leading and coincident indexes may help the Yen recover if they print more strongly than forecast on Wednesday.
The Pound to Yen exchange rate is currently up around 0.8%, trending in the region of 157.3500.