Safe Haven Rise Leads to Pound to Japanese Yen (GBP/JPY) Exchange Rate Plunge

Pound to Japanese Yen Exchange Rate Plummets as Sterling Support Still Limited 

Despite the Pound’s (GBP) boost in demand on UK fiscal stimulus news, the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate has been unable to hold its highs. The pair has been tumbling since yesterday as safe haven demand rises. 

GBP/JPY has been trending with a largely upside bias this week. Since the pair opened at the interbank level of 134.22, it spent most of the week climbing. 

Yesterday, GBP/JPY’s weekly advances reached a peak. The pair touched on a high of 135.86 – the best GBP/JPY level since mid-June. 

Since then though, GBP/JPY has been slumping again. At the time of writing on Friday, GBP/JPY has shed most of its weekly gains and is trending in the region of 134.52. 

The Japanese Yen (JPY) could continue to climb as a safe haven currency. However, investors are also anxiously anticipating the Bank of Japan’s (BoJ) July policy decision next week. 

Pound (GBP) Exchange Rates Seeing Limited Benefit from UK Stimulus News 

Yesterday saw investors buying the Pound (GBP). In what analysts called something of a delayed reaction to UK Chancellor Rishi Sunak’s Summer Statement, Sterling spent most of the day climbing higher. 

Still, this support for Sterling is also limited. Uncertainties over how the coronavirus and Brexit situations will continue to progress in Britain are also weighing heavily on the Pound. 

With more parts of Britain’s economy reopening from the coronavirus pandemic, markets are anxious about how much economic activity will rebound. 

According to Helen Dickinson, Chief Executive at the British Retail Consortium (BRC): 

‘However, unless footfall returns to UK streets, Government must be prepared to step in and take further action to boost demand, such as widening the VAT cut to include retail goods.’ 

Japanese Yen (JPY) Exchange Rates Surge as Preferred Safe Haven Currency 

The Japanese Yen (JPY) is a currency often associated with market safe haven demand. In fact, the Yen often moves with shifts in market risk-sentiment more than it moves in reaction to Japanese news and data. 

With safe haven demand on the rise in recent sessions, the Japanese Yen has been one of the currencies to benefit most strongly. 

As coronavirus cases surge in the US and fears of a ‘second wave’ mount, the US Dollar (USD) has been much less appealing as a safe haven. This has meant that the Japanese Yen is capitalising on safe haven demand where the US Dollar struggles. 

In fact, some analysts predict that the market focus on infections could continue to worsen. This would make it easier for the Yen to hold its ground. 

Pound to Japanese Yen (GBP/JPY) Exchange Rate Could Fall Lower on Coronavirus Focus 

Investors have bought the Pound (GBP) in recent sessions on hopes for some recently announced UK stimulus news. However, the Pound to Japanese Yen (GBP/JPY) exchange rate continues to fall amid rising safe haven demand and this movement could simply continue. 

Some analysts are predicting that focus could continue to shift away from data, back towards ‘second wave’ fears amid rising infections. According to Minori Uchida, Chief Currency Strategist at MUFG Bank: 

‘Although we have seen improvements in economic data, people are beginning to think that is just a natural outcome of economic reopenings. Now they are starting to worry more about increasing infections,’ 

Looking ahead to next week though, the Japanese Yen (JPY) could see its appeal dampened depending on upcoming Bank of Japan (BoJ) news. 

If the BoJ’s July policy decision disappoints investors it could weigh on the Yen’s safe haven appeal. 

Brexit developments and of course coronavirus news will also remain influential for the Pound to Japanese Yen (GBP/JPY) exchange rate. 

Josh Jeffery

Contact Josh Jeffery