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Bank of Japan (BoJ) Speculation Keeps Pound to Japanese Yen Exchange Rate near Post-2016 Worst

Japanese Yen Currency Forecast

Pound to Japanese Yen Exchange Rate Recovery Stopped Short by Central Bank Speculation

Despite yesterday’s brief Pound (GBP) rebound, the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate slipped back towards its worst levels today. Sterling remained volatile on Brexit and Bank of England (BoE) news while Bank of Japan (BoJ) speculation supported the Japanese Yen (JPY).

A lack of solid supportive Japanese data in recent sessions has not stopped the Yen from being one of this week’s most resilient major currencies. Since opening this week at the level of 134.50, GBP/JPY has shed over 2 yen.

GBP/JPY briefly touched on a major low of 131.68 on Tuesday, which was the worst level for the pair since 2016 – the year of the Brexit vote.

Yesterday’s rebound was limited, and GBP/JPY continued to trend closely to the level of 131.92 at the time of writing today.

While Brexit fears dominate the Pound outlook, the Yen outlook has improved slightly as the Federal Reserve’s latest policy decision was perceived as taking some dovish pressure off the Bank of Japan.

Pound (GBP) Exchange Rate Outlook Still Dominated by No-Deal Brexit Fears

The perceived possibility of a worst-case scenario no-deal Brexit has been consistently rising in recent weeks, and this continues to be the most significant factor in the Pound outlook.

Investors are hesitant to buy the Pound too much, even in its recovery rebounds, due to the pervasive fear that Britain could crash out of the EU without a deal by the end of the year.

This is part of why the British currency is tumbling again today, following yesterday’s month-end rebound.

Sterling had recovered some of this week’s losses due to month-end fixings, profit-taking, and Bank of England (BoE) anticipation.

Overall though, concerns about Britain’s economic activity amid no-deal Brexit fears limited Sterling’s potential for gains.

Sterling fell again ahead of today’s Bank of England (BoE) news as Markit’s UK manufacturing PMI printed a stronger than forecast but still concerning contraction of 48.0.

The Bank of England announced cuts to its economic growth forecasts and noted a higher risk of a no-deal Brexit, which put further pressure on Sterling today.

Japanese Yen (JPY) Exchange Rates Strengthen amid Bank of Japan Outlook Speculation

Despite a lack of support in recent Japanese data, the Japanese Yen is seeing stronger demand since last night’s Federal Reserve policy decision.

The Federal Reserve announced a US interest rate cut as expected, but was more hawkish about the US economic outlook than many analysts predicted.

The bank indicated it was not the beginning of a US rate cut cycle, despite speculation of multiple US interest rate cuts over the next year. This led to a stronger US Dollar (USD) overnight.

While the Japanese Yen typically weakens in response to a stronger US Dollar, the news inspired speculation that the Bank of Japan (BoJ) may now see less pressure to ease monetary policy itself.

As a result of hopes that the Bank of Japan would avoid becoming more dovish, the Japanese Yen was resilient and held against the Pound’s gain attempts.

Pound to Japanese Yen (GBP/JPY) Exchange Rate Investors Await PMIs and Japanese Growth

Investors will digest today’s Bank of England (BoE) news for the rest of today, but concerns about the possibility of a no-deal Brexit becoming reality are likely to persist and keep a lid on the Pound’s potential for recovery.

Central bank news could keep influencing Japanese Yen movement for the rest of the week as well, if tomorrow’s Bank of Japan (BoJ) meeting minutes surprise investors at all.

Next week though, data is more likely to take focus for the Pound to Japanese Yen (GBP/JPY) exchange rate.

Monday will see the publication of Britain’s July services PMI. As this is Britain’s biggest economic sector it could influence Pound movement, but Brexit news will remain the focus.

The Japanese Yen will continue to be influenced by movement in rivals, but Pound to Japanese Yen (GBP/JPY) exchange rate investors will also be anticipating Japan’s Q2 Gross Domestic Product (GDP) growth rate projections due next Friday.