Global Recession Fears Fuel Pound Sterling Japanese Yen (GBP/JPY) Exchange Rate Decline
As global markets largely shrugged off announcements of significant fiscal stimulus measures the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate continued to slide.
With investors increasingly fearful of the prospect of the global economy slipping into a state of recession in the first half of 2020 safe-haven demand remained elevated.
This kept the Japanese Yen (JPY) on a stronger footing against its rivals, in spite of the already sluggish state of the Japanese economy.
A surprise recovery in February’s Japanese trade balance also helped to shore up the Yen, with the data showing an unexpected return to surplus.
As market sentiment looks unlikely to see any particular recovery in the near term JPY exchange rates could hold onto a bullish trend for some time to come.
UK Fiscal Stimulus Fails to Shore up Pound Sterling
Even though Chancellor Rishi Sunak unveiled £350 billion package of loans and grants on Tuesday evening this failed to benefit Pound Sterling (GBP).
While markets found some relief in the government acting to shore up the domestic economy through fiscal stimulus the measures failed to go as far as some would like.
With businesses continuing to sound the alarm over the impact of the Covid-19 crisis the threat of the UK economy recording negative growth picked up further.
Unless the government signals additional intervention the Pound may remain on a weaker footing in the days ahead.
Friday’s UK public sector net borrowing report is unlikely to offer the GBP/JPY exchange rate a rallying point, given that government debt is now set to jump higher.
Until the economy can demonstrate signs of resilience in the face of the pandemic the mood towards the Pound may struggle to improve.
Signs of Inflation May Boost Japanese Yen Demand
February’s Japanese consumer price index data may add to the appeal of the Yen, meanwhile, as forecasts point towards a slight uptick on the year.
Evidence that inflationary pressure within the Japanese economy is building could give Bank of Japan (BoJ) policymakers some cause for relief.
However, even if the inflation data disappoints this is unlikely to outweigh the bearish nature of global market sentiment.
As long as investors see cause for concern in the outlook of the global economy the Japanese Yen will continue to benefit from safe-haven demand.
Without a recovery in market confidence the GBP/JPY exchange rate looks set to remain biased to the downside for the foreseeable future, even if the Japanese economy shows fresh signs of weakness.