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GBP/JPY Exchange Rate Jumps to 4-Month-Best as Negative Interest Rate Speculation Softens

Bank of England

GBP/JPY Exchange Rate Benefits from Bank of England (BoE) Comments 

The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate rebounded today, as markets reassessed the chances of the Bank of England (BoE) introducing negative interest rates in the coming months.  

Despite weakness in the Pound (GBP) lately, lower appetite for safe havens has limited Japanese Yen (JPY) appeal. Last week saw GBP/JPY tumble from opening levels of 141.13 and recover again, ultimately closing the week just below its opening levels. 

The GBP/JPY tumble seen yesterday was even more limited. Today, GBP/JPY is rebounding strongly and at the time of writing has jumped higher to the region of 141.70, its best levels since September. 

Pound (GBP) Exchange Rates Rebound as BoE Negative Interest Rate Speculation Softens 

Speculation that the Bank of England (BoE) could introduce negative interest rates soon rocketed last week. It came in response to news of a third national lockdown in the UK. 

However, despite signs that BoE officials were heavily considering negative rates, BoE Governor Andrew Bailey showed notable hesitance to implement them today. 

Due to his comments, market expectations of negative rates as soon as the coming month are fading – at least for now. 

According to Valentin Marinov, Head of G10 Forex Research and Strategy at Credit Agricole SA: 

‘The Pound is regaining ground as rates markets are paring back rate cut bets ahead of the February policy meeting, 

Any rebounds in the GBP represent a selling opportunity at current levels.’ 

Japanese Yen (JPY) Exchange Rates Unappealing amid Market Sentiment, State of Emergency 

The Japanese Yen (JPY) has been unappealing in recent weeks. Investors are hesitant to buy the safe haven Japanese currency as hopes for a global recovery from the coronavirus pandemic rise and markets are more willing to take risks. 

Not only is risk-sentiment weighing on the Japanese Yen today, but the Japanese currency continues to be weighed by Japan’s state of emergency. 

Tokyo has been given a ‘state of emergency’ status as the coronavirus Covid19 surges through the city. 

What’s more, Japanese Prime Minister Yoshihide Suga said the government was considering extending the state of emergency beyond Tokyo. 

This, combined with a lack of impressive Japanese data lately, kept the Japanese Yen unappealing. 

Pound to Japanese Yen (GBP/JPY) Exchange Rate May Climb Higher Without Safe Haven Boost 

Unless there is a jump in demand for safe havens like the Japanese Yen soon, investors may see little reason to sell the Pound to Japanese Yen exchange rate. 

While the Pound’s rally could run out of steam as UK coronavirus fears return, the Japanese Yen could remain weak as well. 

The best chance the Japanese Yen has of mounting a recovery in the coming sessions is a sudden rise in safe haven demand, or an improvement in Japan’s coronavirus situation. 

If the global coronavirus outlook worsens or there is a big complication with vaccine rollout, safe haven demand could rise and boost the Japanese Yen’s appeal. 

As for the Pound, any improvement in Britain’s own coronavirus situation or economic outlook could keep the British currency recovering. 

Pound to Japanese Yen exchange rate investors will keep a close eye on potential comments from Bank of England (BoE) officials as well.