Pound Sterling to Japanese Yen (GBP/JPY) Exchange Rate Nears Monthly Best Following Subdued Japanese Inflation

Pound to Japanese Yen Exchange Rate Holds Near Best Levels despite Broad Brexit Uncertainties

Stronger performance in the Japanese Yen’s (JPY) rivals, combined with disappointing Japanese data, made it much easier for the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate to sustain major gains over the past week.

While the GBP/JPY inter-bank exchange rate has been unable to hold above the key level of ¥142.00, the pairing is still on track to have gained over two Yen throughout the week thanks to Brexit speculation and a weaker Yen.

The primary cause of GBP/JPY gains throughout the past week has been market speculation that a no-deal Brexit could be avoided, and that a softer Brexit was becoming more likely. This made Sterling (GBP) more appealing.

The Japanese Yen has been a little limper in comparison, being influenced by global market movements, though the latest Japanese data certainly didn’t help.

While the Pound weakened slightly on Friday, GBP/JPY was able to remain relatively close to its best weekly levels as the morning’s Japanese inflation report left investors hesitant to buy the Yen.

Pound (GBP) Exchange Rates Sustain Gains on Rising Hopes that No-Deal Brexit can be Avoided

As power over the direction of the Brexit process moves away from the UK government and is focused more around Parliament as a whole, market concerns about the possibility of a no-deal Brexit have receded somewhat.

Parliament appears highly opposed to the possibility of a no-deal Brexit, with many MPs discussing ways to prevent it from happening.

As the government also survived a no confidence vote in the middle of the week, market fears of a possible general election have weakened.

With no-deal and general election fears lessening, markets are increasingly sold on the perceived rising likelihood of a soft Brexit, with speculation of a potential second referendum also rising.

However, uncertainties persist regarding how these possible solutions could be achieved, with the government’s cross-party talks seeing no major breakthroughs thus far. As a result, the Pound’s rally was short-lived and the currency slipped back today.

Disappointing UK retail sales stats from December also weighed slightly on the Pound today, though the weaker stats were blamed partially on Brexit uncertainties.

Japanese Yen (JPY) Exchange Rates Fail to Rebound Strongly amid Damp Japanese Inflation Data

Demand for safe haven currencies was slightly stronger last week, but the Japanese Yen (JPY) was unable to benefit as much of the market movement was in favour of its rival, the US Dollar (USD).

As the US Dollar rebounded from weeks of losses, investors sold the Japanese Yen in favour of the US currency. This made it easier for the stronger Pound to climb for most of the week.

Even at the end of the week, when the US Dollar’s recovery slowed, the Japanese Yen failed to recover much. This was due to Japan’s latest Consumer Price Index (CPI) results, which confirmed that Japanese inflation was slowing.

While the news simply met market expectations, Japanese inflation slowing to 0.3% year-on-year and remaining at a monthly contraction of -0.2% did little to make the Japanese currency more appealing.

Pound to Japanese Yen (GBP/JPY) Exchange Rate Could Slide if Safe Haven Demand Rises

Much of the Pound’s (GBP) strength over the past week was due to Brexit speculation, but amid a lack of solid clarity over how the process will unfold the Pound’s potential for gains is limited.

The Pound is only likely to rise much further if a delay to Brexit is confirmed, or if a soft Brexit or second referendum is perceived as being more likely.

However, the Japanese Yen (JPY) may not recover much if investors continue to find safe haven currencies unappealing.

US-China trade relations remain the primary cause of shifts in risk-sentiment. If US-China trade tensions are perceived as worsening, safe haven demand may rise and the Yen could strengthen.

Recent Japanese data has also been keeping pressure on the Japanese Yen, so upcoming Japanese data and news could provide the Yen with some support if it impresses.

Japanese trade balance stats from December will be published on Wednesday, followed by the Bank of Japan’s (BoJ) January policy decision.

Japanese manufacturing PMI data from Nikkei and Tokyo CPI data will be published later in the week and could influence the Pound to Japanese Yen (GBP/JPY) exchange rate if there are no notable political developments next week.

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