Pound to Japanese Yen Exchange Rate Losses Limited Despite Weakness in Yen Rivals
Despite Wednesday’s Federal Reserve outlook spooking markets and bolstering demand for US Dollar (USD) rivals like the Japanese Yen (JPY), the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate rebounded slightly on Thursday morning.
Since opening this week at the level of 142.72, GBP/JPY has tumbled as investors find safe haven currencies like the Japanese Yen more appealing.
On Thursday morning, GBP/JPY touched on four-month-low of 141.50, before trending closer to the level of 141.80 at the time of writing.
Demand for the Pound (GBP) improved slightly following Brexit comments from UK Work and Pensions Secretary Amber Rudd, but overall uncertainty regarding Brexit kept Sterling from recovering too far from its lows.
Investors sold the Japanese Yen slightly from its best levels as investors digested the Bank of Japan’s (BoJ) latest policy decision and anticipated Japan’s latest inflation rate data.
Pound (GBP) Exchange Rate Rebounds Slightly on Brexit Speculation
Notable UK ecostats this week have done little to change the Pound outlook, which is still shrouded in uncertainty amid a lack of clarity in the Brexit process.
With mere months until the UK is set to leave the EU and still no sign of how exactly the Brexit process will unfold, investors are hesitant to move too much on Sterling.
The perceived possibility of a worst-case scenario ‘no-deal Brexit’ has also worsened.
However, with Sterling being driven primarily by Brexit developments it was able to rebound slightly versus the Japanese Yen thanks to comments from UK Work and Pensions Secretary Amber Rudd.
As Rudd is a senior official, her indication that a second Brexit referendum of some kind may become ‘plausible’ if UK Prime Minister Theresa May’s Brexit plan fails to pass bolstered referendum speculation.
She said that there needs to be some kind of majority in Parliament, so if MPs could not reach another solution the chances of another referendum may grow.
Demand for Sterling was also slightly supported by Britain’s November retail sales results, which printed far above expectations.
Japanese Yen (JPY) Exchange Rates Slip Ahead of Japanese Inflation Rate Results
For most of the week, the Japanese Yen has benefitted from market demand for safe haven currencies amid fears of slowing growth in China, as well as weaker commodity prices.
Weakness in its biggest rival, the US Dollar (USD), has also made the Japanese Yen more appealing. This has been the primary cause of the Pound to Japanese Yen exchange rate’s (GBP/JPY) losses this week.
The Yen was briefly even more appealing when the Federal Reserve’s tone spooked markets on Wednesday evening, but the Bank of Japan’s (BoJ) tone in its own policy decision on Thursday dampened the Yen’s appeal.
As was expected by economists, the BoJ left Japanese monetary policy frozen. However, despite previously hinting at positive policy change in the next few years, BoJ officials instead indicated that its economic stimulus plans could deepen instead.
This is due to signs of dovishness from other major Central Banks, such as the Federal Reserve and European Central Bank (ECB), as well as concerns of slowing global growth.
Analysts aren’t particularly optimistic about Japan’s upcoming November inflation rate report either, which could put additional late-week pressure on the Japanese Yen.
Pound to Japanese Yen (GBP/JPY) Exchange Rate May Recover if Japanese Inflation Disappoints
Friday’s Asian session will see the publication of Japan’s Consumer Price Index (CPI) inflation rate report from November, which is likely to show that inflation slowed notably year-on-year.
The key year-on-year inflation rate is expected to have slumped from 1.4% to 0.8% overall, though core inflation is expected to have remained at 1.0%.
Month-on-month inflation came in at 0.2% in October, but forecasters speculate this rate will have slowed in November too.
Slowing Japanese inflation will give the Bank of Japan (BoJ) even less reason to move away from its monetary policy stimulus or make more hawkish policy moves.
This would dampen market demand for the Japanese Yen and could make it easier for the Pound to Japanese Yen exchange rate to recover more before markets close for the week.
UK growth data and business investment stats will be published during Friday’s European session, but the Pound to Japanese Yen (GBP/JPY) exchange rate outlook is more likely to be influenced by Japanese data and potential Brexit developments.