Will the Japanese Government Forecast Weigh on Pound Sterling (GBP) Exchange Rates?

Modified: Tuesday, 6 September 2016 09:34 BST - Written by John Cameron

STORY LINK Will the Japanese Government Forecast Weigh on Pound Sterling (GBP) Exchange Rates?

Brexit Negotiations Could Send Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) Exchange Rates Lower

While Pound Sterling (GBP) exchange rates are currently proving robust, with GBP/EUR and GBP/USD rallying to multi-week highs, there are concerns that the currency's fortunes could be reversed as the UK's negotiations to Brexit continue.

A special report on the potential effects of Brexit, published by Japan’s Foreign Ministry on Sunday, started off promisingly enough, asserting that,

‘Japan shares basic values and enjoys strong partnerships with the United Kingdom (UK) and the European Union (EU) in various fields including politics, the economy and security. We expect to continue cooperating and collaborating closely for international peace, stability and prosperity.’

Uncertainty Forecast to Weigh on Pound Sterling (GBP) Medium Term Currency Outlook

However, the tone of the missive soon deteriorated and the issues highlighted have the potential to weigh on Pound Sterling (GBP) exchange rates. The comments picked up on one major theme which coloured pre-Brexit debate and has carried through into post-Brexit discussions, the note went on to warn that,

‘Uncertainty is a major concern for an economy. We hope that predictability is secured whereby all stakeholders, not just the negotiating parties, have a clear idea of the post-BREXIT landscape. This will be possible if the BREXIT negotiations are conducted through an uninterrupted and transparent process, which could include arrangements such as the establishment of a provisional period and, if there need to be institutional changes, the granting of time for the transition and publicising of such changes.’

Threat of Loss of Business Could See Pound Sterling to Euro and US Dollar Exchange Rates Lower in 2016

The content of the report then adopted a decidedly accusatory tone, warning that,

‘it is of great importance that the UK and the EU maintain market integrity and remain attractive destinations for businesses where free trade, unfettered investment and smooth financial transactions are ensured. In light of the fact that a number of Japanese businesses, invited by the Government in some cases, have invested actively to the UK, which was seen to be a gateway to Europe, and have established value-chains across Europe, we strongly request that the UK will consider this fact seriously and respond in a responsible manner to minimise any harmful effects on these businesses.’

The final denouement of the publication, following a series of demands issued on behalf of Japan’s businesses, brought the threat that the nation’s firms who had previously invested in Britain might shift their operations out of the UK if ‘EU laws cease to be applicable in the UK’.

Such a threat from the government of Asia’s second economy is forecast to weigh down the Pound Sterling (currency : GBP) outlook into the medium term.

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