May 25, 2018 - Written by Minesh Chaudhari
STORY LINK GBP to JPY Exchange Rate Tumbles as UK Growth Fails to Impress Investors
Despite underwhelming inflation data from Tokyo this week, the British Pound to Japanese Yen (GBP/JPY) exchange rate has seen major losses this week and could be in for another week of losses if investors continue to return to the ‘safe-haven’ Japanese Yen.
Last week saw GBP/JPY climb from 148.15 to 149.19 – but this week the pair lost those gains and then some. In fact, after advancing for most of May GBP/JPY shed all of its May gains and trended near its lowest levels since September 2017 towards the end of the week. GBP/JPY hit an eight-month-low of 145.77 on Thursday.
GBP Tumbles as UK Ecostats Fail to Impress
Friday rounded off a bearish week for Pound trade, as investors reacted to some largely unsurprising UK Gross Domestic Product (GDP) projections by selling the currency further.
UK growth is still projected to have slowed from 0.4% to 0.1% quarter-on-quarter, and from 1.4% to 1.2% year-on-year.
Some analysts reacted to the data by suggesting there would be little reason for the Bank of England (BoE)
to hike UK interest rates any time soon. According to David Cheetham, chief market analyst from XTB:
‘The Bank of England have been keen to stress that the weakness in the first quarter was temporary, while also pointing out that it has historically been prone to upwards revisions.
Unfortunately for [Bank of England governor Mark] Carney and his fellow Monetary Policy Committee members, there has been no such upwards revision today and while there's still the final reading to come, it is unlikely we see much improvement there.’
Earlier in the week, Brexit uncertainties and a surprising slowdown in UK inflation weighed heavily on the Pound.
Friday’s UK growth projections simply confirmed to investors that Britain’s growth outlook was underwhelming and there was little reason to buy Sterling.
Britain’s Q1 business investment results were published on Friday too, and these figures did fall short of expectations.
Quarterly business investment is projected to have contracted at -0.2%, with yearly investment expected to slow from 2.6% to 2.0%.
Granted the combination of underwhelming stats today, analysts have had little reason to be bullish. Lee Hopley from EEF argued:
‘Taking together the forces of Brexit uncertainty, softening indicators in overseas markets and consumers that have yet to regain their mojo, it is hard to see what will spur some renewed momentum in the economy over the next couple of quarters.’
JPY Benefits from Weakness in USD Despite Mixed Japanese Data
The Japanese Yen has seen a surge in demand this week, as global risk-sentiment worsened for the first time in weeks and the US Dollar’s (USD) long-lasting rally finally came to an end.
As the Yen is both a ‘safe haven’ currency and a currency that benefits from weakness in the US Dollar, it was able to easily benefit from the global market mood, despite a lack of strong factors domestically.
In fact, Japanese data has been quite underwhelming this week. While the latest trade surplus and tankan index figures climbed, Japan’s March leading index and Tokyo’s May inflation figures disappointed.
Japan’s final March leading index result slipped from 105.9 to 104.4, below the expected 105.6.
The yearly Consumer Price Index (CPI) figure for Tokyo was forecast to remain at 0.5% but slowed to 0.4%. Similarly, core inflation in the city unexpectedly worsened from 0.6% to 0.5%.
GBP/JPY Forecast: Japanese Data and Global Factors to Drive Yen Next Week
As next week’s UK economic calendar will be quieter, investors are unlikely to find the Pound more appealing unless there are solid optimistic Brexit developments.
Failing that though, the strength of the Japanese Yen is most likely to drive Pound to Yen exchange rate movement throughout the week.
There will be plenty of opportunities for Yen trade to shift gear next week, with multiple major Japanese stats due for publication.
Tuesday will see the publication of Japan’s April unemployment rate, followed on Wednesday by April retail sales stats, May consumer confidence, and a speech from Bank of Japan (BoJ)
Governor Haruhiko Kuroda.
Of course, with global geopolitics and trade uncertainties still in focus too, any developments there which impact risk-sentiment could have a strong influence on the Pound to Japanese Yen exchange rate too.
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TAGS: Pound Yen Forecasts