Pound to Japanese Yen Exchange Rate Recovery Limited by ‘Safe Haven’ Demand
Due to the latest global geopolitical concerns and the perceived currency crisis in Turkey, demand for the ‘safe haven’ Japanese Yen (JPY) has prevented the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate from recovering too much.
After tumbling from 144.62 to 141.49 last week, GBP/JPY briefly touched on a low of 140.34 when markets opened this week. This was the lowest GBP/JPY level in about a year, since mid-August 2017.
While Pound (GBP) investors have calmed slightly on the ‘no deal’ Brexit jitters that undermined the British currency last week, the Japanese Yen remains appealing on broad market appeal in ‘safe haven’ currencies.
As a result of the market’s move towards safer currencies like the Yen, the Pound has only seen limited benefit from this week’s UK ecostats.
Investors look ahead to upcoming UK retail data, as well as Japanese trade data, but for now the Pound to Japanese Yen exchange rate struggles to recover from near its worst levels in a year.
Pound (GBP) Exchange Rates Limp despite First UK Inflation Rise of 2018
While Britain’s July Consumer Price Index (CPI) inflation results beat expectations slightly in one of its major prints and rose for the first time since November 2017, the Pound was unable to strongly benefit.
Britain’s year-on-year inflation rate rose from 2.4% to 2.5% in July, as forecast. Meanwhile, the monthly figure unexpectedly remained at a stagnant 0.0% rather than falling into a contraction of -0.1% as forecast.
Yearly core inflation remained at 1.9% as was forecast.
As inflation rose for the first time this year, analysts noted that the cost of living squeeze was also persisting. According to Tej Parikh from the Institute of Directors (IoD), this could have a negative impact on consumer activity:
‘For households, this isn’t good news, as the already weak growth in their pay packets is being further eroded by high prices. This is likely to weigh down consumer spending, posing fresh problems for embattled high street businesses,’
Overall, the data didn’t do much to lighten market fears about UK price pressures. Some analysts remain concerned that the Bank of England (BoE) was hasty in hiking UK interest rates in its August policy decision.
This has limited the Pound’s recovery, particularly against sturdy ‘safe haven’ currencies like the Japanese Yen.
Japanese Yen (JPY) Exchange Rates Resilient as Turkey Jitters Bolster ‘Safe Haven’ Demand
The ‘safe haven’ Japanese Yen continued to benefit from global geopolitical uncertainties this week, helping it to hold its ground against the Pound’s recovery attempts.
As a result of market demand for safe havens, the Japanese Yen is currently trending near its best levels in a year against the Pound.
The Turkish Lira (TRY) has experienced a selloff so sharp that analysts fear it could impact Turkey’s neighbouring economies and other emerging markets.
Then, on Wednesday, Turkey announced a set of trade tariffs on imports of US goods.
This helped the Turkish Lira recover slightly, but overall the high market volatility left ‘safe haven’ currencies appealing and the Yen was able to hold its ground against Sterling.
Japanese industrial production data from June beat forecasts when it was published on Tuesday, which also helped the Japanese Yen to remain sturdy.
Pound to Japanese Yen Forecast: Can GBP/JPY Recover on Thursday Data?
So far, this week’s UK data has been insufficient to help the Brexit-battered Pound to recover against the Japanese Yen.
Investors are looking ahead to Thursday’s key economic data from Britain and Japan, and further ahead to potential political developments.
If Japan’s July trade balance figures are worse than expected on Thursday it could indicate that Japanese trade has been negatively impacted by US protectionism, which could leave the Yen weaker.
On top of this, the Pound could find some support in Thursday’s UK retail sales results from July if they beat forecasts.
Retail sales are forecast to have improved, but if they beat forecasts the Pound could see stronger performance on hopes that consumer activity has been more resilient than expected.
Looking ahead, any optimistic developments regarding the Brexit process could bolster the Pound to Japanese Yen (GBP/JPY) exchange rate further, but the Yen may remain resilient so long as ‘safe haven’ currencies are appealing.
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