Pound to Japanese Yen Exchange Rate Fails to Continue Rebound as Yen Remains Appealing
Rather than continue the rebound it began last week, revived safe haven demand has left the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate lower this week. The Japanese Yen (JPY) remains the safe haven currency of choice amid concerns about other major economies.
Last week saw GBP/JPY recover from near a post-January low of 136.53 to close near the level of 137.79.
This recovery was fairly small compared to the steep losses GBP/JPY saw in May, and after brief attempts at climbing higher this week the pair has ultimately slipped again and trends closer to the level of 136.98 at the time of writing.
The Pound (GBP) outlook remains dominated by Brexit uncertainties impacting domestic politics and the economy, while concerns that the US economy is slowing down are leaving the Yen outlook higher as well.
Pound (GBP) Exchange Rates Fail to Find Relief in Latest Conservative Party Developments
This week saw relatively mixed and limp movement from the Pound, as the British currency settled from weeks of shock movements on Brexit fears and uncertainties.
Even as the Conservative Party leadership contest to decide the next Prime Minister formally began, the Pound’s reaction to the developments have been fairly limited overall.
Yesterday, the first round of voting among Conservative Party MPs took place, and the vote ended with frontrunner Boris Johnson receiving an impressive 114 votes.
Johnson is already predicted by markets as the favourite to win, but his stronger than expected performance doused uncertainty.
Lower uncertainty supported the Pound, but investors remain anxious about Johnson’s harder stance on Brexit. On top of this, analysts speculate that a stronger contender to Johnson’s popularity may emerge as the contest continues.
Japanese Yen (JPY) Exchange Rates Firm as Safe Haven Demand Returns
For much of the past month, rising fears of US protectionism, as well as signs of US economic weakness and Federal Reserve interest rate cut bets, led investors to seek out safe haven currencies as global economic fears grew.
There was a brief pause in those fears as US-Mexico trade concerns lightened and investors speculated that a trade breakthrough between the US and China was still possible soon, but safe haven demand has returned this week as fears persist.
As a safe haven currency, the Japanese Yen strengthens in times of global economic uncertainty.
This often makes it the currency of choice when geopolitical jitters are causing weakness in the US Dollar (USD), which also often benefits from safe haven demand.
As economists become more doubtful that the US and China will reach an agreement in time for this month’s upcoming G20 summit, safe haven demand has only strengthened. According to Manuel Oliveri, analyst at Credit Agricole:
‘You still have a lot of uncertainty when it comes to geopolitics,
The focus is shifting to the G20 meeting. Risk sentiment remains relatively unstable,’
Pound to Japanese Yen (GBP/JPY) Exchange Rate Fall Could Slow on Bank of Japan News
The Japanese Yen remains the market’s safe haven currency of choice at times of geopolitical and US economic uncertainty, but this also means that the Bank of Japan (BoJ) commonly becomes anxious about the Yen becoming too strong.
If the Yen continued to strengthen to near its best levels versus major currencies like the Pound and other rivals, it could prove a problem for Japan’s economy. As a result, economists speculate the BoJ could dovish action to limit the Yen’s appeal soon.
The Bank of Japan is holding its June policy decision next Thursday. While no change to the bank’s monetary policy is expected, there is mounting speculation that the bank could signal plans for more dovish policy to be implemented.
If the bank is more dovish as speculated, it could prevent GBP/JPY from falling much further as the Yen’s potential for further gains would be limited.
However, there is little room for a Pound recovery either. Upcoming UK data is unlikely to be particularly influential as focus will remain on the Conservative Party leadership contest.
As a result, the Pound to Japanese Yen (GBP/JPY) exchange rate is likely to be driven by Japanese data and Bank of Japan news over the next week.