Pound Sterling to Japanese Yen Exchange Rate Outlook: Can GBP/JPY Hold near August Highs?

Pound to Japanese Yen Exchange Rate Surges on Brexit Optimism, Japanese Data Impresses

The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate may struggle to hold onto its current best levels in weeks, even after some good news on Brexit saw a notable boost this week. Resilient ‘safe haven’ demand and strong Japanese data have kept GBP/JPY away from its highs.

Initially, after opening the week at the interbank level of ¥142.84, GBP/JPY saw relatively limp movement. However, on Wednesday GBP/JPY surged to a high of ¥145.62 – the highest interbank level since the beginning of August.

At the time of writing on Thursday, the interbank GBP/JPY rate was trending slightly lower in the region of ¥145.25. This was due to a slightly more resilient Japanese Yen (JPY) on Thursday, as well as uncertainties clouding the current Brexit optimism.

This week’s biggest news so far has been Wednesday’s Brexit developments – in particular, EU Chief Negotiator Michel Barnier’s comments about a possible deal between the UK and EU, which left the Pound (GBP) looking significantly more appealing.

Pound (GBP) Exchange Rates Slip Slightly from Best Levels as Brexit Uncertainties Cloud Optimism

Wednesday saw investors rush into the Pound (GBP), as EU Chief Negotiator Michel Barnier indicated that the bloc might be willing to give the UK a deal that would be unprecedented for a non-EU country.

Following weeks of concerns that a ‘no-deal’ Brexit was becoming more of a realistic possibility, Barnier’s hints of a stronger partnership than most economists expected were a bullish surprise for pound investors.

However, following its Wednesday surge, the Pound’s buoyancy dropped on Thursday as some analysts highlighted possible caveats to Barnier’s comments.

Some analysts noted that even if the UK and EU agree to a deal, it does not mean such a deal will make it through the UK Parliament.

Furthermore, this type of language from the EU is not unfamiliar. According to Neil Wilson, Chief Market Analyst from Markets.com:

‘Softer language will be a positive but A) There is yet scepticism about what it all means with few details on any of this; and B) We have heard this kind of language in the past.’

Japanese Yen (JPY) Exchange Rate Losses Limited on Solid JP Data and ‘Safe Haven’ Demand

While the Japanese Yen (JPY) hasn’t been hugely influential for the Pound to Japanese Yen (GBP/JPY) exchange rate’s movement this week, the Japanese currency was supported above its worst levels.

After weakness in the US Dollar (USD) for much of the past week, the currency has rebounded slightly since Wednesday. This led to slightly stronger demand for other ‘safe haven’ currencies, like the Japanese Yen.

On top of slightly stronger risk-off movement in markets, the Japanese Yen found support in Thursday’s Japanese data, which beat forecasts.

Japan’s July retail sales results avoided a forecast -0.3% contraction month-on-month, merely slowing from 1.5% to 0.1%, while the yearly figure only slipped to 1.5% rather than the predicted 1.2%.

Pound to Japanese Yen (GBP/JPY) Forecast: Brexit Uncertainties May Worsen Again

Most of this week’s Pound to Japanese Yen (GBP/JPY) exchange rate gains have been due to a bullish reaction to EU Chief Negotiator Michel Barnier’s optimistic comments about a possible UK-EU Brexit deal.

As a result, much of these gains could be reversed if markets become more concerned about the Brexit outlook again.

Analysts remain cautious due to the possibility that just because Barnier noted a deal was possible, it did not mean it would be achieved. In particular, analysts were concerned that the UK may need to make more concessions in talks.

With a meeting between Barnier and UK Brexit Minister Dominic Raab set to take place on Friday, there is the chance of further Pound volatility before markets close for the week. According to Josh Mahoney, Market Analyst from IG:

‘There is a strong chance that the bullish optimism seen over the past 24 hours will be washed away, if talks continue to hit the same roadblocks.’

As for the Japanese Yen (JPY), developments in risk-sentiment and market appetite for ‘safe haven’ currencies are likely to be influential.

Still, some UK consumer confidence figures, as well as Japanese unemployment and industrial production stats due on Friday, could also influence the Pound to Japanese Yen (GBP/JPY) exchange rate before markets close.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard