US Turbulence Drives JPY Demand

The Pound weakened against the Japanese Yen on Wednesday, falling to its worst exchange rate since the start of May. This GBP slide has been caused by a negative reaction to UK earnings data.

GBP Drops against JPY over UK Wage Squeeze Fears

The Pound was in high demand early on Wednesday, bolstered by a surprise drop in UK unemployment.

Since then, however, Sterling has worsened against the Yen due to concerns that a wage squeeze will limit UK retail activity.

Unemployment fell to the lowest rate since 1975, but with real incomes apparently at their lowest since the Napoleonic era, traders have been cautious about buying into Sterling too readily.

The Yen, meanwhile, has risen strongly thanks to external developments.

Japanese domestic data saw machinery orders worsen in March and April, while industrial production also dropped compared to previous months.

The Yen has instead received support from an unlikely source – US President Donald Trump.

Trump and his administration are currently mired in a controversy about the firing of FBI Director James Comey. As well as this incident being scrutinised, traders have also been put off by claims that Trump tried to block an investigation into a former White House official.

This has caused a steady slide in US economic confidence, which has led to increased demand for the safe-haven Yen.

GBP/JPY Forecast

For this week and the next, Pound/Japanese Yen exchange rate movement may occur as a result of UK retail sales on Thursday and industrial orders on Friday. Next week’s main UK news will consist of government borrowing figures on Tuesday and GDP growth rate figures on Thursday, along with business investment stats.

Retail sales have been forecast to grow in all fields, so the Pound could rise against the Yen if predictions are accurate. Industrial orders are expected to post steady growth, which could also enable a GBP JPY rise at the end of the week.

Next week, UK Q1 GDP is forecast to slow on the quarter but rise on the year. Annual figures are usually more impactful than quarterly results, so the Pound may advance on the news.

Business investment previously fell by -0.9%, so positive figures will be needed to support the Pound. Given that Brexit anxieties have only intensified, however, investment may drop further, weakening Sterling in the process.

Yen-influencing news this week will include GDP growth rate stats on Thursday. Next week’s data will include the April trade balance, a speech from the Bank of Japan’s (BoJ) Governor and end-of-week inflation rate figures.

The incoming Japanese Q1 GDP figures are forecast to show growth on the quarter and the year, which could raise Yen demand.

Next week, if BoJ Governor Haruhiko Kuroda speaks positively about the economy on Wednesday, then the Yen could appreciate.

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Oliver Meredew

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