Pound to Japanese Yen (GBP/JPY) Exchange Rate Struggles as Yen Benefits from Rival Weakness
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate is on track to have slipped this week. As investors sold the US Dollar (USD) and Euro (EUR) on Central Bank news this week, the safe haven Japanese Yen (JPY) has been appealing.
After opening this week at the interbank level of ¥136.67, GBP/JPY briefly slumped to a post-January low of ¥135.43 on Brexit fears and safe haven demand.
While the Yen has since weakened slightly on domestic central bank speculation, Sterling (GBP) has been unable to capitalise on this and the pair is trending closer to the inter-bank level of ¥136.19 at the time of writing.
Many central banks, including the Bank of England (BoE) and Bank of Japan (BoJ), took more cautious tone in their policy decisions this week.
Pound (GBP) Exchange Rates Remain Weak as UK Political and Brexit Fears Mount
There hasn’t been much in the way of supportive news for the Pound (GBP) recently, leaving the British currency floundering as Brexit uncertainty dampens the UK political and economic outlooks.
For most of the past week, politics has continued to keep pressure on the Pound as Brexiteer Boris Johnson has emerged as the clear frontrunner to succeed Prime Minister Theresa May.
The Conservative Party leadership contest has run down to its top two candidates now, and voting among party members will run until mid to late July.
In the fifth and final parliamentary ballot, Johnson won 160 votes, and Jeremy Hunt took second place with 77 votes, giving Johnson a very strong lead.
Johnson’s expected win has been concerning for Pound investors, as he has indicated that he would rather take Britain towards a no-deal Brexit than extend the Brexit deadline again.
Political jitters have kept pressure on Sterling, but this week’s news that the BoE had cut its Q2 2019 growth forecasts and taken a slightly more cautious tone also dampened demand for the Pound.
Japanese Yen (JPY) Exchange Rates Benefit from Safe Haven Demand
The theme of this week was that central banks appeared to be adopting a more cautious and dovish stance, prompting markets to bet on looser monetary policy – and the Bank of Japan (BoJ) was no different in its June policy decision yesterday.
As analysts expected, the BoJ communicated a cautious tone in reaction to the Federal Reserve’s recent dovishness, indicating that if Fed monetary policy became significantly looser, Japanese monetary policy may need to be made looser in reaction.
The Japanese Yen’s (JPY) appeal was briefly weaker following the news, but as this tone was largely expected its losses were limited.
On top of this, the Japanese Yen found more support towards the end of the week as investors perceived it as an appealing safe haven.
The dovishness of major central banks, as well as fresh geopolitical and trade tensions from the US, also bolstered support for the safe haven Yen.
Pound to Japanese Yen (GBP/JPY) Exchange Rate Remains Focused on Central Bank Bets
Pound (GBP) movement is likely to remain driven by political news, although developments in the Conservative Party leadership contest may quieten down as voting among the party base begins.
As a result, movement in the Pound to Japanese Yen (GBP/JPY) exchange rate will focus on central bank developments and global risk sentiment.
As the G20 summit at the end of the month draws nearer, markets will increasingly focus on US trade tensions. If trade tensions persist, or worsen, the safe haven Yen could strengthen.
Any major US or Eurozone data that boosts Central Bank rate cut bets could also make the Yen more appealing.
Domestic news may influence the Yen in the coming week as well, including key Japanese retail sales data on Thursday and unemployment and production stats on Friday.
Meanwhile the week’s UK data is unlikely to be hugely influential for the Pound to Japanese Yen (GBP/JPY) exchange rate, but investors will still closely watch Friday’s UK Q1 growth rate data.