Pound Japanese Yen Exchange Rate Boosted by Persistent BoJ Dovishness
Unsurprisingly, the Bank of Japan (BoJ) opted to leave monetary policy unchanged at its March meeting, causing the Pound to Japanese Yen (GBP/JPY) exchange rate to strengthen sharply.
Investors are still unimpressed by the persistent dovishness of the BoJ, as the rest of the major central banks shift towards a tightening bias.
As policymakers maintained their pledge to buy government bonds at an annual rate of 80 trillion Yen the more dovish mindset of the BoJ looks set to persist for some months yet to come.
With the central bank offering no indications as to when or how it might eventually start to wind down its aggressive quantitative easing measures the appeal of the Japanese Yen (JPY) naturally diminished.
Weaker UK GDP Forecast Fails to Dent Pound Exchange Rates
Even though the NIESR gross domestic product estimate for the three months to February fell short of forecast this failed dent the gains of the GBP/JPY exchange rate ahead of the weekend.
After another run of weakness over the course of the week the downside potential of the Pound (GBP) has been somewhat limited, for the time being at least.
Nevertheless, the slowdown from 0.5% to 0.3% does not bode well for the economic outlook of the UK.
As snow disruption is expected to weigh on growth in March this weaker showing seems to raise the risk of faltering momentum in the first quarter.
With the UK and EU still looking markedly at odds on the subject of Brexit, and their ideas for a future trade relationship, the upside potential of the Pound is likely to remain limited for some time to come.
Trade War Speculation Expected to Dominate Japanese Yen Outlook
While high-impact Japanese data will be a little thin on the ground over the coming week the GBP/JPY exchange rate could still come under pressure from a stronger Yen.
Reaction to the Trump administration’s heavy steel and aluminium tariffs could help to shore up the safe-haven Yen, with markets likely to remain jittery over the prospect of a global trade war.
Any signs that the situation is escalating, with trading partners imposing their own retaliatory measures on the US, may drive investors to pile back into the Yen once again.
However, if the general sense of market risk appetite starts to recover in the days ahead this might see JPY exchange rates extending their downtrend further.
GBP/JPY Exchange Rate Vulnerable Ahead of Spring Budget Announcement
As Chancellor of the Exchequer Philip Hammond unveils his Spring Budget, the GBP/JPY exchange rate may see something of a rally.
If the Budget reveals a smaller-than-expected level of government borrowing the mood towards the Pound could pick up, boosting confidence in the underlying health of the UK economy.
However, with no real policy changes forecast at this juncture the ultimate impact of Hammond’s statement may prove to be limited.
Worries over Brexit are still expected to remain a major headwind for the GBP/JPY exchange rate for the time being, particularly if UK and EU officials show no signs of approaching any sort of compromise on key issues.