Pound Sterling to Japanese Yen (GBP/JPY) Exchange Rate Climbs on Bank of Japan Warnings

Pound to Japanese Yen Exchange Rate Avoids Losses amid Japanese Yen Weakness

Investors have been hesitant to buy the Japanese Yen (JPY) this week, leaving the Pound Sterling to Japanese Yen GBP/JPY) exchange rate as one of the only major Pound (GBP) pairings to generally trend higher.

Since opening this week at the interbank level of ¥143.30, GBP/JPY has climbed over a Yen. Despite a brief dip in GBP/JPY on Tuesday, the pair hit its best levels since last week today.

The primary cause of GBP/JPY gains this week so far has been Japanese Yen weakness. Amid mixed Japanese data and a cautious Bank of Japan (BoJ), investors are hesitant to buy the Yen.

Nevertheless, the Pound has been unable to capitalise on the Yen’s weakness due to broad and persistent concerns about the possibility of a ‘no-deal’ Brexit.

Brexit jitters are dominating Pound movement, to the point where Thursday’s upcoming Bank of England (BoE) decision may be brushed over by investors focused on Brexit developments instead.

Pound (GBP) Exchange Rates Rebound Slightly but Gains Capped

On Tuesday, investors sold the Pound (GBP) amid a fresh round of Brexit jitters. With still no sign of a finalised UK-EU Brexit deal, markets have been increasingly anxious that a worst-case scenario ‘no-deal Brexit’ is becoming more likely.

Investors only became more anxious about the lack of progress when credit rating agency S&P said the ‘no-deal’ Brexit chances had risen enough to be acknowledged in ratings considerations.

The S&P group also forecast that in the event of no-deal, the UK could enter a prolonged period of recession.

Sterling saw a slight boost in demand on Wednesday as investors bought the British currency back from its cheapest levels.

However, the Pound’s potential for gains will remain limited until a Brexit deal is achieved. According to Brian Martin, Senior International Economist at ANZ Bank London:

‘Brexit agreement over safeguarding against a hard border for Northern Ireland is proving elusive. It is impossible to see how, without that, a Withdrawal Agreement will be reached. For businesses, the longer the delay, the greater the uncertainty.’

Japanese Yen (JPY) Exchange Rates Dip as Bank of Japan (BoJ) Takes Cautious Tone

As was widely expected by economists and investors, the Bank of Japan (BoJ) left monetary policy unchanged during its October policy decision during Wednesday’s Asian session.

However, investors sold off the already weakened Japanese Yen (JPY) further following the bank’s decision, as it was notably cautious about Japan’s economic outlook.

BoJ Governor Haruhiko Kuroda ruled out the possibility of an early interest rate hike, due partially at least to persistent global political and trade uncertainties.

Kuroda said that risks to Japanese growth were driven largely by these global factors, and indicated that if they have a bigger than expected impact on Japan’s economy the bank would take action.

The bank’s tone of caution was stronger than the one the bank showed earlier in the year.

While this was the primary cause of Japanese Yen weakness on Wednesday, some underwhelming consumer confidence and housing starts data put further pressure on the Japanese currency.

Pound to Japanese Yen (GBP/JPY) Exchange Rate to Focus on Brexit over Bank of England Decision

Thursday will see the Bank of England (BoE) announce its November policy decision, but amid a lack of progress in UK-EU Brexit negotiations the announcement is unlikely to be hugely influential for the Pound to Japanese Yen (GBP/JPY) exchange rate.

The primary focus for Pound investors is likely to remain the Brexit negotiations, until there is some clarity on what kind of deal, if any, the UK and EU will end up with.

Unless the UK and EU reach agreement on the issue of Ireland’s border, and UK MPs indicate they will support it, the Pound’s potential for gains is limited.

The Bank of England is expected to leave monetary policy frozen during its policy decision, and its outlook for monetary policy under the assumption of a soft Brexit may be brushed over by investors.

Instead, if the BoE indicates that its outlook will be significantly worse in the event of a ‘no-deal Brexit’, this could weigh on the Pound.

The Japanese Yen is unlikely to see much strength in the coming days as investors digest the Bank of Japan’s decision.

However, if markets become risk-averse and hungrier for safe haven currencies like the Yen, the Pound to Japanese Yen (GBP/JPY) exchange rate may lose some of this week’s gains.

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