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Pound Japanese Yen (GBP/JPY) Exchange Rate Flat as BoE Optimism Competes with Coronavirus Surge

Pound Japanese Yen

GBP/JPY Exchange Rate Trades Level as Rising Covid Cases Promote the Yen

The Pound Japanese Yen (GBP/JPY) exchange rate has plateaued this morning as a rise in Japanese Covid cases has brought support to the safe-haven Yen.

At the time of writing, the Pound (GBP) is trading at JP¥152.691, similar to Monday’s opening levels.

Japanese Yen Finds Support on Safe-Haven Status, Set to Gain Further as Covid Cases Rise?

The safe-haven Japanese Yen (JPY) has found support this morning as domestic coronavirus infections climb higher than they’ve been before. 11,867 cases (average for the whole of Japan) were registered yesterday, compared with 7,448 the week previous.

The surge in cases in Tokyo specifically came despite more than two weeks of emergency measures, raising doubts that the authorities can slow infections effectively. The Prime Minister, Yoshihide Suga, has now expanded the coronavirus state of emergency to four more areas beyond Tokyo, effective from Monday until 31 August.

The Japanese authorities have also taken to naming and shaming individuals for breaching quarantine rules, in the hopes it will act as a deterrent to others. On Wednesday, the names of three individuals were released who broke quarantine rules after returning from overseas. The health ministry said the Japanese nationals had clearly acted to avoid contact with authorities.

Looking into next week, JPY trading sentiment is likely to be driven further by coronavirus developments, in the absence of any significant data releases. The week following, GDP figures will likely cause some movement.

Pound (GBP) to Slide Lower into Next Week?

The Pound may continue to drop against the Japanese Yen today depending upon coronavirus developments, as well as various economic data.

A slight turndown in the GBP/JPY exchange rate has proceeded yesterday’s upwards hike on the Bank of England (BoE)’s forward guidance. The BoE’s interest rate decision, coupled with quantitative easing projections and meeting minutes provided plenty of scope for movement.

While the predominant message from the BoE was a dovish one, GBP investors took heart from officials’ signalling some modest tightening of monetary policy over the next two years. The central bank also said it now saw inflation hitting a peak of 4% in late 2021 and early 2022 (vs 2.5% from its May forecast).

That optimism appears to have dulled slightly today as the Pound is dipping slightly against several of its peers. Looking ahead, BoE policymaker Ben Broadbent may provide further insight this afternoon into the central bank’s near-term projections.

Going into next week, Thursday will bring fresh data in the form of June’s balance of trade, in addition to GDP figures and industrial/manufacturing production. GDP is expected to see significant gains alongside production figures, while the balance of trade is forecast to post a deficit. Overall, the data seems set to lift the Pound higher.