Fantasy Currency Trader (Pound to Yen Rate) ? Bank Of Japan Action Re-Enforces Positive Forecast for GBP JPY

November 3, 2014 - Written by John Cameron

STORY LINK Fantasy Currency Trader (Pound to Yen Rate) ? Bank Of Japan Action Re-Enforces Positive Forecast for GBP JPY

Some six weeks ago, our Fantasy Currency Trader feature saw our leading analyst forecast positive moves for the Pound to Yen exchange rate (GBP/JPY) from the level of 178.260 which it was then trading at. The past seven days have seen considerable developments in Japan.

How has this effected our prediction?

First we take a look at the FX markets today:

The Pound to Japanese Yen exchange rate converts at 1 GBP is 179.65936 JPY.
The Euro to Japanese Yen exchange rate converts at 1 EUR is 140.67201 JPY.
The US Dollar to Japanese Yen exchange rate today is converting at 112.32150 USD/JPY.
The Hong Kong Dollar to Japanese Yen exchange rate today is converting at 14.48368 HKD/JPY.

Bank of Japan Action Weakens Yen

Friday’s Asian session brought a highly significant announcement from the Bank of Japan (BoJ) which triggered a pronounced lurch higher for the Pound Sterling Yen exchange rate.

The pair had been languishing at just below the 175.00 threshold as the day’s trading got underway, however the announcement from Japan’s reserve bank that, against expectations, it was set to expand the scope of its monetary policy stimulus sent the pair sharply Northwards.

Asia’s second most important central bank has been bulk-buying illiquid assets in the markets in an effort to increase the level of liquidity in the domestic financial system during recent years.

Until Friday, the amount the BoJ had earmarked on an annual basis to this controversial programme stood at JPY60-70tn.

Tokyo Share Market Soars

The revelation that this already hefty tranche was set to be increased to an unprecedented JPY80tn sent Japanese appetite for risk soaring, as evidenced by an intraday gain of 4.83% for Tokyo’s leading equities index, the Nikkei 225, on the final trading day of the week.

On the currency markets, the news sent the Pound Sterling soaring against the Japanese Yen; by the end of the week’s session, the pair had touched a fresh 6-week high of 179.828 GBP JPY.

Leading analysts forecast that there could be further gains to come for GBP JPY in the short-to-medium term given the fact that Japanese Premier Shinzo Abe appears hell-bent on increasing his nation’s money supply in an effort to boost confidence levels of the nation’s economic participants.

Abe does not appear to be going anywhere and while this remains the case, further weakness for the Japanese Yen would appear highly likely.

Flight To Safety Put To Bed

The six weeks since our initial go-ahead forecast for the GBP JPY has by no means been plain sailing for the Pound against the Yen.

The pair plunged to its lowest level since the 17th March during the middle of last month as investors abandoned risk and sought out safe haven currencies including the Japanese unit.

The flight to safety was triggered by global fears that the deadly Ebola virus might be about to spread to Western nations, while ongoing concerns regarding tensions between Russia and Ukraine and further evidence of a slowdown in China added to the mood of doom.

Pound Sterling to Japanese Yen Exchange Rate Forecast Higher

A lower than expected set of UK inflation data last month have also hampered the progress for GBP JPY.

However, with the Bank of England now apparently acknowledging that its next interest rate rise may now be some time off, the negative effect of these numbers is likely to be almost fully factored-in to pricing for the Pound.

Consecutive closes for GBP JPY above its 5-year high of 180.718 – a move which would send out a strong positive signal for the pair – now appear highly likely, making us more confident in our original forecast that the Pound Yen exchange rate would move higher from its then current level of 178.260 GBP JPY (current valuation of original GBP10,000 is GBP10,087.96).

An ultimate target for the trade comes at August 2007’s multi-decade peak of 251.090.

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