Pound to Japanese Yen Exchange Rate Tumbles despite Poor Japanese Data on Safe Haven Demand
Friday saw the publication of a worse-than-expected Japanese growth report, but despite this the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate continued to tumble due to market demand for ‘safe haven’ currencies.
After opening this week at the level of 146.17, GBP/JPY climbed on strong UK data and Bank of England (BoE) bets to a reach a high of 148.08 on Thursday. It was the best GBP/JPY level in over two weeks.
GBP/JPY tumbled after hitting the high though, and at the time of writing on Friday the pair trended near the week’s opening levels again.
Despite Sterling (GBP) finding support in domestic news, broad market demand for ‘safe haven’ assets surged towards the end of the week due to uncertainties about US stances on trade, and the upcoming G7 summit.
As the Japanese Yen (JPY) is perceived as a safe haven currency, it often sees high demand in times of market uncertainty and this caused it to surge despite underwhelming domestic data.
Pound (GBP) Exchange Rate Demand Limited despite Hawkish Bank of England (BoE) Comments
The Pound was unable to hold its ground against a stronger Japanese Yen towards the end of the week, as market demand for save haven currencies overshadowed domestic news.
Still, Sterling may have fallen even further if recent UK data and Bank of England (BoE) comments hadn’t let to higher BoE interest rate hike bets.
Earlier in the week, Britain’s May services PMI report from Markit beat forecasts and indicated that Britain’s economy had rebounded a little more than expected from the poor performance seen at the beginning of the year.
This was followed on Thursday by comments from Bank of England (BoE) Deputy Governor Dave Ramsden. While Ramsden is typically seen as a dovish policymaker, his comments were perceived as hawkish.
Ramsden argued that UK data services and wage growth data indicated that Britain’s economy was performing to the bank’s expectations so far this year. He noted that his previous concerns about UK wages had lightened.
As a result of his comments, market confidence in a BoE interest rate hike taking place as soon as August 2018 grew. This limited GBP/JPY losses, but the Japanese Yen’s strength was too broad on Friday.
Japanese Yen (JPY) Exchange Rates Surge as Markets Demand Save Haven Assets
Towards the end of the week, US President Donald Trump ramped up his criticisms of current US trade deals with major ally nations again, including China and the European Union.
Trump’s continued protectionist rhetoric, combined with the recent obstacles in NAFTA renegotiations and US-China trade talks, have rekindled market concerns that the US could spark a global trade war.
As the Japanese Yen is a safe haven currency that becomes more appealing at times of market uncertainty, it surged on Thursday and Friday ahead of the upcoming G7 summit.
Analysts are concerned that the summit will not be particularly productive if Trump persists on his protectionist stances.
As a result of the market demand for safe havens, Japanese Yen investors brushed over Friday’s concerning Q1 growth results.
Japan’s final Q1 Gross Domestic Product (GDP) results were forecast to contract at -0.1% quarter-on-quarter, but instead came in at -0.2%. The yearly figure was even worse, contracting at -0.6%.
Pound to Japanese Yen (GBP/JPY) Forecast: Domestic News to Take Focus Again if Trade Jitters Lighten
Notable data and news from the UK and Japan is expected next week, but investors may simply brush over the data if market focus remains on global trade developments.
If the G7 summit happens to be productive and leaves US President Trump more optimistic about US trade, trade war jitters will cool again and the Pound to Japanese Yen (GBP/JPY) exchange rate will advance.
However, if Trump ramps up protectionist rhetoric or trade war jitters otherwise worsen, GBP/JPY is likely to continue to tumble.
Sterling losses could be limited if upcoming UK data impresses, particularly if data boosts Bank of England (BoE) interest rate hike bets.
UK wage growth data on Tuesday and inflation data on Wednesday could both influence BoE bets, so Sterling could climb if they impress and slump if they disappoint.
Also worthy of note is Japan’s June monetary policy decision, which will be held on Friday and could make it easier for the Pound to Japanese Yen (GBP/JPY) exchange rate if it impresses investors.