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Pound Sterling to Japanese Yen Exchange Rate Could Remain near 5-Month-Best Unless Brexit News Disappoints

Japanese Yen Currency Forecast

Pound to Japanese Yen Exchange Rate Climbs as Yen Sold on US News

The Pound Sterling to Japanese Yen (GBY/JPY) exchange rate’s rally recovered on Thursday, as expectations for Federal Reserve hawkishness left the Japanese Yen (JPY) weaker. The Pound (GBP) continued to benefit from Brexit speculation.

GBP/JPY has been climbing solidly since the beginning of the month. In late-October, GBP/JPY briefly touched on a monthly low of 142.88, but the pair has since recovered over 6 yen.

At the time of writing on Thursday, GBP/JPY trends near a 5-month-high of 149.44, having gained over 2 yen already this week alone.

Investors continue to buy Sterling versus its weaker rivals amid hopes that a UK-EU Brexit deal can be formally reached by the end of the month.

The Japanese Yen, on the other hand, continues to be sold on expectations for further caution from the Bank of Japan (BoJ), as well as higher risk-sentiment since this week’s US Mid-Term Elections ended.

Pound (GBP) Exchange Rate Gains Limited as UK Growth Forecast to Slow

Demand for the Pound has been fairly solid for most of the week so far, but this has been largely due to market hopes that the UK and EU will be able to reach a formal Brexit deal in the coming weeks – before November comes to an end.

At the beginning of the week, Sterling support was bolstered by a report claiming that the EU was prepared to offer a UK-wide customs union arrangement.

However, that report was denied by officials and since then there has not been much in the way of notable Brexit developments either.

On Thursday, the Pound’s appeal was dented due to the European Commission’s (EC) latest growth forecasts for EU members.

The EU expects UK growth to be among the slowest in the bloc this year and next – when the UK will technically have left the EU. According to the EC report:

‘UK GDP growth is currently subdued and expected to remain so over the forecast horizon. Private consumption growth is forecast to remain weak as real wages grow modestly and households look to maintain savings.’

Japanese Yen (JPY) Exchange Rates Sold on Perceived Central Bank Divergence

Since the Bank of Japan (BoJ) was unsurprisingly cautious in its recent policy decision, investors have recently had little reason to buy the Japanese Yen besides safe haven demand.

As market safe haven demand has lightened since the beginning of November and investors are increasingly comfortable taking risks again, the Japanese Yen has seen even less support.

This week so far, the Yen’s selloff has only deepened due to these factors.

The results of the 2018 US Mid-Term Elections were largely unsurprising, with the Democratic Party taking majority power in the US House of Congress. With the Republican Party still in control of the Senate, this meant the US was essentially in political gridlock.

The Democrats having control of the House meant that US President Donald Trump would struggle to push through new US fiscal policy for now.

With markets no longer expecting major fiscal change from the US, investors became even more willing to take risks and safe haven demand weakened.

On top of this, strong US data means investors continue to expect tighter monetary policy from the Federal Reserve.

As US monetary policy continues to tighten while Japanese monetary policy remains around its loosest levels on record, this perceived divergence in monetary policy has made the Japanese Yen unappealing this week.

Politics Remain in Focus for Pound to Japanese Yen (GBP/JPY) Exchange Rate

Despite the European Commission’s disappointing UK growth forecast, the Pound to Japanese Yen (GBP/JPY) exchange rate is still on track to see significant gains this week.

If Brexit speculation continues to support Sterling and the Yen remains weak on higher risk-sentiment and Central Bank policy divergence, GBP/JPY could sustain 2 yen worth of gains.

As a result, developments in political news and risk-sentiment are likely to drive GBP/JPY for the remainder of the week. Any potential Brexit developments are likely to be particularly influential.

Friday will see the publication of typically influential UK data, including growth stats from September and Q3, as well as September trade and production data, and Q3 business investment stats.

If any of these figures a notably surprising the Pound could be driven, but if there are any Brexit developments on Friday these would likely be given priority for any shift in Sterling.

While Brexit focus will only intensify until a deal is either reached or fails, next week’s Japanese growth and trade data could influence the Pound to Japanese Yen (GBP/JPY) exchange rate too.