Japanese Consumer Gloom Trumps Latest Brexit News as Pound to Yen (GBP/JPY) Exchange Rate Remains Buoyant

Cautious Optimism over UK Construction PMI as well as Lack of Concern over Latest Brexit Saga Triggers GBP/JPY Exchange Rate Rise as Japanese Consumer Confidence Takes a Tumble

The Pound to Japanese Yen (GBP/JPY) exchange rate has made a small advance today – up about 0.25% – following a better-than-expected result for April’s UK construction PMI.

The PMI reading showed a rise out of the contraction range with an increase from 47 points to 52.5, exceeding the forecast 50.5 point reading.

Labelling this as a positive result but also warning about future instability, Chartered Institute of Procurement and Supply Group Director Duncan Brock said:

‘April’s data provides some relief after last month’s weather disruption, especially for the housing sector after a lacklustre few months.

‘However, economic uncertainty and Brexit-related indecision continue to lurk beneath the surface as obstacles to the construction sector’s stability.’

Risk of ‘Brexit Rebellion’ Prevents Further GBP/JPY Exchange Rate Gains

Although today’s construction data has improved Pound (GBP) exchange rates, Sterling hasn’t made an outright rally against the Yen (JPY) because of concerns over Brexit.

The latest obstacle comes from within, as it is reported that pro-Brexit MPs may try to force Prime Minister Theresa May to abandon any efforts to remain in an EU customs union.

The government already plans to reject a customs union, but Brexiters seem concerned that any association with EU membership post-Brexit will harm the UK economy.

This presents a problem for Brexit negotiators, who are forced to balance the demands of MPs with aims such as having no hard border between Ireland and Northern Ireland.

Falling Consumer Confidence Brings Japanese Yen to Pound Exchange Rate Losses

The latest Japanese economic data has unsettled Yen (JPY) traders, preventing an advance against the Pound (GBP).

Although Japanese manufacturing activity was reported higher yesterday, more recent consumer confidence stats have shown falling optimism during April.

Last month’s reading had been expected to rise from 44.3 points to 44.6, but instead fell to 43.6 points.

Putting the figures into context, levels of consumer confidence remained static in February and March, but this latest deterioration could be the start of a series of declines.

Pound to Japanese Yen Forecast: Can GBP/JPY Exchange Rate Advance on Services Sector Growth?

The Pound (GBP) could rise further against the Japanese Yen (JPY) tomorrow, when this week’s most important PMI data release comes out.

The services sector reading for April is predicted to show growth during the month, with a rise from 51.7 points to 53.5.

While this would be a small increase, services sector activity contributes the most to UK economic growth so the Pound to Yen (GBP/JPY) exchange rate could rise on such news.

For Japanese Yen traders, the next major economic data won’t come until 7 May when the Bank of Japan (BoJ) releases the minutes from its latest meeting.

BoJ policymakers remained cautious when they last met, leaving interest rates at -0.1% and removing the timeframe for meeting their 2% inflation rate target.

As such, the minutes could trigger Japanese Yen to Pound (JPY/GBP) exchange rate losses if they confirm that policymakers are unlikely to take any action in the foreseeable future.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon