Pound to Japanese Yen Exchange Rate Holds Ground Despite Brexit Jitters
Weakness in the safe haven Japanese Yen (JPY) has helped the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate to avoid major losses this week, despite fresh Brexit uncertainties weighing on a volatile Pound (GBP).
A rise in market demand for riskier currencies helped GBP/JPY to avoid deeper losses last week too. GBP/JPY closed last week at the level of 138.02 rather than the week’s brief two-year-low of 133.22.
Analysts suggest the two-year-low was caused by a ‘flash crash’ amid the quiet market conditions that followed New Year’s Day.
This week so far, GBP/JPY has largely trended with an upside bias, though the pair trended closely to the week’s opening levels at the time of writing. GBP/JPY has also been unable to recover last week’s losses due to Brexit jitters weighing on Sterling.
Of course, the Pound would have seen worse losses against the Japanese Yen if not for a lack of market appetite for safe haven currencies this week.
While the Japanese Yen has been a preferable safe haven currency to its rival the US Dollar (USD), markets have been buying riskier currencies instead and this has left the Yen weaker, making it easier for the Pound to Yen exchange rate to hold its ground.
Pound (GBP) Exchange Rates Unappealing as Brexit Uncertainties Continue to Mount
The Pound has performed poorly this week so far, and the British currency’s outlook is still full of uncertainties that only seem to worsen despite the formal Brexit day drawing closer.
Britain is set to leave the EU on the 29th of March, and there is still no clarity on how exactly the Brexit process will unfold.
The UK government’s long-negotiated UK-EU withdrawal deal is currently being debated in UK Parliament and the deal will be put to a UK Parliament vote next week. Analysts believe it does not have enough support to pass into UK law.
On Wednesday, UK Parliament voted in favour of an amendment that would pressure the UK government to offer a ‘Plan B’ on Brexit within days if the deal fails to pass next week.
Investors perceived this as weakening the UK government’s position over Brexit, worsening uncertainty. A worst-case scenario ‘no-deal Brexit’ remains a possibility if the deal fails to pass and this is keeping the Pound highly unappealing.
Japanese Yen (JPY) Exchange Rates Slide as Investors Sell Safe Havens
After major market appeal for most of 2018, it seems like safe haven currencies are out of vogue in 2019 so far.
With signs that the US and China are seeing progress in trade negotiations and de-escalations of last year’s trade tariffs and actions, investors are becoming more comfortable taking risks again.
This has meant that safe haven currencies like the Japanese Yen, most popular in times of market uncertainty and tension, have been less appealing to investors.
Still, the Japanese Yen’s losses haven’t been as deep as those of its rival, the US Dollar (USD).
Much of the recent risk-sentiment has been due to US trade news and more dovish Federal Reserve interest rate hike bets, so the US Dollar has been falling further and the Japanese Yen has been more appealing in comparison.
Japanese data hasn’t done much to bolster market demand for the Yen amid the risk-on rally. Japan’s December consumer confidence data came in even lower, falling from 42.9 to 42.7.
Pound to Japanese Yen (GBP/JPY) Exchange Rate Outlook Limited despite Risk-On Movement
Investors are unlikely to buy the Pound to Japanese Yen (GBP/JPY) exchange rate much in the coming sessions, despite lower market demand for safe haven currencies like the Japanese Yen.
This is due to market uncertainty regarding how the Brexit process will turn out.
With the UK Parliament vote on UK Prime Minister Theresa May’s Brexit deal now just days away though, the GBP/JPY outlook could be in for significant changes in the coming week.
If the UK-EU withdrawal deal happens to pass through UK Parliament, the Pound could surge as the UK would be headed for a softer Brexit.
However, the deal is not expected to pass the vote next Tuesday, and this will leave the UK government with mere days to come up with a ‘Plan B’ for how the Brexit process could unfold.
With next week set to be a hectic one for Pound investors, the Japanese Yen is more likely to react to developments in US-China trade negotiations and risk-sentiment.
Next week’s Japanese inflation data from December may also influence the Pound to Japanese Yen (GBP/JPY) exchange rate outlook.