The Pound to Japanese Yen exchange rate plunged on Wednesday as the Bank of Japan’s (BoJ) latest stimulus measures failed to dissuade markets from buying the ‘safe-haven’ Yen. However, by Thursday morning GBP/JPY had recovered from its monthly-lows of 130.4679 and trended in the region of 131.5000.
Pound (GBP) Limp Amid Brexit Fears
Sterling has generally been unable to advance this week, with the currency limp due to a lack of solid British data and concerns over the long-term effects of Britain’s Brexit vote.
The UK’s lone influential ecostat this week, public sector net borrowing for August, failed to impress markets too by indicating that public borrowing was only slightly less-than-forecast at 10.1b.
Comments made on Wednesday by the Office for National Statistics (ONS) claimed that Britain had yet to feel a real negative effect from the Brexit vote.
However, markets instead looked forward to the Brexit process itself amid expectations that the UK would not be able to retain access to the European Union’s single market. This has weighed on the Pound throughout the week, meaning Sterling has only been able to advance on weaker rivals.
Japanese Yen (JPY) Falls from Highs as Risk-On Fever Hits
Investors initially piled into the Japanese Yen (JPY) on Wednesday following the Bank of Japan’s (BoJ) latest interest rate announcement.
While investors were previously spooked away from the Yen by the bank’s announcement of an unexpected, new kind of stimulus, after a little analysis investors were generally impressed by what they perceived to be a differently-named variety of quantitative easing.
As a result, the Yen soared across the board, but its strength didn’t last as it was sold from its highs on Thursday. As the Federal Reserve disappointed traders by holding back on interest rate hikes, the forex market instead sought out higher yields from risk-correlated currencies.
As a result, ‘safe-haven’ currencies were sold off in the movement and the Yen was finally brought down from its highs.
JPY investors may also have been dissuaded on yet another reminder that the Japanese government will act and intervene if markets continue to take speculative action on the currency.
GBP/JPY Forecast to Trend More Flatly on Friday
While Sterling still lacks the market momentum to carry and sustain considerable exchange rate movement and will likely remain limp until next week, the Yen’s current selloff is unlikely to last.
Markets are just getting started on a new risk-correlated rally following the Fed’s Wednesday announcements so the Yen is likely to remain weaker than it has been in recent weeks.
However, the Yen is still the ‘safe-haven’ currency of choice for many investors when global risk factors become too high. The Yen’s selloff could also be softened on Friday if Nikkei’s preliminary September Japan PMI impresses markets.
GBP/JPY is currently on track to end the week lower than its opening levels and as markets have thus far considered the Japanese government’s intervention statements as little more than jawboning, the Yen could continue to trend strongly until the end of the week.
However, if the Yen becomes much stronger and the Japanese government does in-fact intervene with the forex market, the Yen could plummet across the board.