Pound to Japanese Yen Exchange Rate Tumbles as Sterling Dragged by UK Data
As the Japanese Yen (JPY) continues to be one of the most appealing major currencies in times of global trade and economic uncertainty, investors have been selling the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate even lower this week.
Due to a recovering US Dollar (USD), GBP/JPY actually edged higher last week from the level of 136.63 to around 137.00.
However, a brief jump to a half-month high of 137.77 at the beginning of this week was short lived, as since then GBP/JPY has tumbled again.
At the time of writing on Wednesday, GBP/JPY was trending near the day’s low of 135.21 – which was the worst level for the pair in half a year, since the beginning of January.
Sterling (GBP) has been broadly unappealing all week due to persisting no-deal Brexit fears and a trio of highly disappointing UK PMI stats, which indicated that Britain’s economy may have seen some of its weakest economic activity since the financial crisis.
Pound (GBP) Exchange Rates Tumble as UK Services Paints Dire Picture for UK Economic Activity
Brexit uncertainties are looming heavily over not just the Conservative Party leadership contest, but also Britain’s economic activity.
As both candidates to be Britain’s next Prime Minister have indicated that a no-deal Brexit could be more likely than another delay in the process, no-deal fears have persisted.
Concerns over how Brexit will unfold are increasingly having a negative impact on Britain’s economic activity as well, as this week’s June PMI stats from Markit showed activity falling well short in all major prints.
Manufacturing and construction printed deeper than expected contractions, and not even Britain’s key services sector was able to hold on strongly.
Today’s services PMI came in at a near-stagnant 50.2 rather than remaining at 51 as expected, and analysts are becoming anxious about the rising signs of a potential recession.
It suggested that June had been the second worst month for UK economic activity since the financial crisis.
According to Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:
‘With a dampened mood across the sector, if a General Election is also thrown into the pot of political turmoil in the coming months, then the sector runs an even greater risk of following the manufacturing and construction sectors into cutbacks, cost-cutting and reduced workforces.’
Japanese Yen (JPY) Exchange Rates Sturdy as Bank of Japan (BoJ) Official Downplays Dovishness
Recently, markets had been speculating that a more dovish Federal Reserve would pressure the Bank of Japan (BoJ) to also take a more dovish tone on monetary policy over the coming months.
Many investors were betting that the BoJ would ease Japanese monetary policy further before the end of the year to prevent the Yen from surging too much on US Dollar (USD) weakness and to soften other headwinds.
As a result, the Japanese Yen saw slightly sturdier demand this morning, as investors reacted to comments from BoJ Board Member Yukitoshi Funo.
Funo said the bank still expected Japan’s economy to recover in the second half of 2019, and indicated that while the bank was ready to act if needed he currently saw little need to ease monetary policy further just yet.
They were the most direct signal yet that the BoJ was not in a hurry to take a more dovish stance.
They came despite this week’s Japanese PMI stats falling short of expectations in many notable prints.
Pound to Japanese Yen (GBP/JPY) Exchange Rate Could See Further Losses if Safe Haven Demand Persists
The Japanese Yen is a safe haven currency that is often more appealing in times of economic uncertainty.
With recent global trade jitters worsening and concerns rising that they could also influence the US economy, investors have favoured the Yen over the US Dollar (USD) as a safe haven.
This sort of movement could continue in the coming sessions too, if US trade tensions continue to concern investors.
Analysts are concerned that US-China trade tensions remain high despite the trade truce, and the US continues to threaten trade action against other trade partners.
Still, investors may be hesitant to buy the Japanese Yen much higher from its current highs against the Pound either, due to a lack of solid domestic support for the Yen.
Tomorrow will see the publication of Japanese bank lending data, with coincident index and household spending data due on Friday. If they disappoint, GBP/JPY has a better chance of recovering.
The Pound to Japanese Yen (GBP/JPY) exchange rate may also recover if there are any fresh signs that a no-deal Brexit will be avoided, but Sterling demand may remain limp otherwise.