Pound Japanese Yen Exchange Rate Forecast: GBP/JPY Nosedives as May Rejects EU Brexit Draft Agreement

Draft EU Brexit Treaty Drives GBP/JPY Exchange Rate Even Lower

Update: The Pound to Japanese Yen (GBP/JPY) exchange rate has extended its losses this afternoon as Theresa May rejected the EU’s draft of its Brexit withdrawal agreement.

The EU’s proposals would see Northern Ireland remain under the rules of the single market if an alternative could not be found by the time the UK leaves.

However May categorically rejected the draft document as she said they would threaten the ‘constitutional integrity’ of the UK.

This has markets concerned over the possibility of further complications in Brexit negotiations and has prompted the Pound exchange rate to trade even lower.

Speculation that the Yen Will Explode this Year Drives GBP/JPY Lower

The Pound to Japanese Yen (GBP/JPY) exchange rate has plummeted this morning as forecasts from analysts suggest that the Yen is set to rocket in value in 2018.

At the time of writing the GBP/JPY exchange rate is trading around 0.5% lower this morning, with the pairing striking a new two-week low.

Japanese Yen (JPY) Soars as it is Forecast to be the ‘Strongest Currency of the Year’

The Japanese Yen is soaring this morning as analysts become increasingly bullish in regards to the currency.

In fact BNP Paribas has gone so far as to proclaim 2018 as the ‘the year of the Yen’, while analysts at Morgan Stanley call it the ‘land of the rising Yen’.

Analysts suggest that the Japanese Yen is particularly attractive as a ‘safe haven’ at the moment given the perceived weakness of the US Dollar (USD).

A note from Morgan Stanley last week read:

‘We see further room for JPY (Japanese yen) appreciation, JPY offers better investment prospects in our view and is more emblematic of a safe-haven currency than the USD at this point.’

Further bolstering the appeal of JPY is the Japanese economy’s recent strength, which has economists hopeful of further growth.

Simon Baptist, chief economist at EIU said:

‘One of the upside surprises in the global economy in 2017 was the strong performance of Japan, which benefited from strong global demand for its exports, extra government spending and lots of liquidity from the Bank of Japan.’

Pound (GBP) Weakened by Dip in Consumer Confidence

The Pound (GBP) meanwhile is struggling this morning following the release of the UK’s latest Consumer Confidence figures.

According to data published by market research institute, Gfk, the UK sentiment index fell from -9 to -10 in February, suggesting that consumers are becoming increasingly downbeat in their economic outlook.

This appeared to be largely driven by concerns about the financial pressures facing households, with soaring inflation and slow wage growth leaving many families tightening their purse strings.

Joe Staton, Head of UK Innovation at GfK said:

‘Ongoing concerns about sluggish household income, rising prices paid by consumers in the shops, and the prospect of inflation-busting council tax and interest rate hikes has dented confidence after last month’s surprising rally.’

GBP/JPY Exchange Rate Forecast: UK Private Sector Activity to Remain Muted?

Looking ahead the GBP/JPY exchange rate may continue to trend lower in the second half of this week’s session as the UK publishes its latest PMI figures.

Economists are forecasting that activity in the UK’s manufacturing sector will have slowed again in February, while the construction sector will have seen only negligible growth.

This is likely to prompt further concerns over the UK’s first quarter growth prospects after January’s PMI readings saw a disappointing drop in activity across the private sector.

Meanwhile the Japanese Yen is likely to continue to rally with the release of Japan’s latest labour report as analysts predict unemployment will have gone back down to 2.7% at the start of the year.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail