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Pound to Japanese Yen Exchange Rate Forecast: Will Risk-On Movement Continue to Boost GBP/JPY?

Japanese Yen Currency Forecast

Pound to Japanese Yen Exchange Rate Climbs despite UK Growth Uncertainties

Thanks to broad weakness in the Japanese Yen (JPY) so far this week, the Pound to Japanese Yen (GBP/JPY) exchange rate has been able to sustain some gains despite the week’s UK political and economic uncertainties.

A surprise boost in demand for risk-correlated currencies last week made it easier for GBP/JPY to advance from 146.18 to 146.78 throughout the week.

GBP/JPY has been gaining further since markets opened on Monday and on Tuesday morning the pair briefly touched on a high of 147.65. This was the best GBP/JPY level in half a month.

There may be further gains ahead for the Pound to Japanese Yen exchange rate despite UK uncertainties, as investors continue to sell the safe haven Japanese Yen in favour of riskier currencies this week.

However, the US has persisted in its protectionist trade stances and the US-China trade war could still escalate, so there is potential for the risk-on movement to end if there are any surprising trade developments.

Pound (GBP) Exchange Rates Advance as UK Political Jitters Subside

On Monday, the Pound briefly slumped in reaction to news that two high-ranking members of UK Prime Minister Theresa May’s cabinet had suddenly resigned.

David Davis, the old Brexit Secretary, as well as the previous Foreign Secretary Boris Johnson, both resigned in protest to UK Prime Minister’s plans for the Brexit process.

The resignations briefly caused a surge in concerns that Theresa May could face a leadership challenge or a vote of no-confidence.

However, on Tuesday morning political analysts noted that May’s position was generally still sturdy, and fears of the government being thrown into further uncertainty lightened somewhat.

Sterling was also slightly supported by Tuesday’s UK Gross Domestic Product (GDP) results from May. The data showed the growth rate improve from April’s 0.2% to 0.3% in May.

While concerns remained about how the highly important UK services sector would survive the Brexit process, this was enough to help the Pound to hold its ground against a weaker Japanese Yen.

Japanese Yen (JPY) Exchange Rate Demand Limited by Risk-On Rally

Despite the US and China seemingly beginning a trade war, investors have been buying risky trade-correlated currencies since last week and this has caused safe haven currencies like the Japanese Yen (JPY) to weaken.

Investors looked to cash in from weeks of safe haven demand by selling the strong Yen and buying riskier currencies while they were cheap.

This has caused broad Japanese Yen weakness in recent sessions, though Japanese data has put further pressure on the currency.

Monday’s Japanese eco watchers survey fell short of expectations in both prints, while Tuesday’s machine tool orders report slipped from 14.9% to 11.4%.

The Bank of Japan also expressed concern this week that a tightening job market could limit business activity.

Pound to Japanese Yen Forecast: UK Politics Could Keep GBP/JPY Outlook on Edge

The Pound’s domestic demand is still not particularly strong, so the direction of Pound to Japanese Yen (GBP/JPY) exchange rate trade for the remainder of the week is likely to depend on market risk-sentiment as well as potential developments in UK politics.

For example, if market jitters about US trade protectionism or the US-China trade war worsen again, the Pound to Japanese Yen exchange rate is likely to shed most of its weekly gains and weaken.

On the other hand though, if trade fears lighten and the risk-on rally continues, the Pound would likely see further gains unless there are concerning UK political developments.

Namely, if there are further signs of division in the UK government, or the chances of a leadership challenge are perceived to have risen, this would worsen hard Brexit concerns and limit the Pound outlook.

The Pound outlook could also be influenced by a speech from Bank of England (BoE) Governor Mark Carney on Wednesday, while the Yen could be driven by Wednesday’s machinery orders data or Thursday’s Japanese tertiary industry index report.