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GBP to JPY Exchange Rate Hits New Post-2016 Worst Following Latest Japanese Growth Report

August 9, 2019 - Written by Toni Johnson

A combination of factors in both economic and geopolitical news has put enough pressure on the British Pound to Japanese Yen (GBP/JPY) exchange rate today, pushing the pair down to its worst levels since 2016. With even more key UK data due in the coming week, the pair may be in for even steeper losses unless political developments shift in the Pound’s favour.

After opening this week at the level of 129.61, GBP/JPY spent most of the week trending with a downside bias with a few sharp dips to the pair’s worst levels in over two years.

Towards the end of the week, the Pound’s attempts at sustaining a recovery failed, and this morning GBP/JPY slumped to its worst level since 2016. At the time of writing, GBP/JPY was trending near this multi-year low of 127.96.

GBP Exchange Rate Weakness Deepens as UK Economy Contracts

Following yet another week of poor performance on the back of worsening no-deal Brexit fears, and fresh concerns that a no-deal Brexit could be followed by a general election, the embattled Pound was hit even lower this morning.

As if Brexit and UK political jitters hitting the Pound outlook wasn’t enough, Britain’s economic outlook worsened when this morning’s UK Gross Domestic Product (GDP) growth rate report was published.

UK growth was expected to slow to a stagnant 0.0% quarter-on-quarter, but instead came in with a contraction of -0.2%. This was the first contraction in Britain’s economy since 2012.

The yearly growth rate was weaker than expected too, slowing from 1.8% to just 1.2%.

The news led to fresh fears that Britain could be headed into recession. If Britain’s economy contracts in the third quarter as well, it would mean a technical recession has taken place.

According to Tej Parikh, Chief Economist at the Institute of Directors, uncertainty is likely to continue with no-deal Brexit fears still dominating the outlook:

‘With the nature of the UK’s exit from the EU looking likely to be determined at the eleventh hour, the economy is facing a bumpy ride going into the third quarter. Another round of stockpiling is complicated by preparations for Christmas and by firms’ previous experience of spending money to no avail.’

The news prevented the Pound from holding any attempts to rebound from its cheapest levels in profit-taking.

JPY Exchange Rates Benefit from Safe Haven Demand and Japanese Growth

Friday rounded off what has been a bumper week for Japanese Yen exchange rates.

The Yen has easily been one of the market’s most appealing major currencies this week, due largely to its status as a safe haven.

Safe haven currencies climb in times of market uncertainty, so this week’s resurgence in US-China trade war and currency war fears have led to safe haven demand and a stronger Japanese Yen.

On top of this, the Japanese Yen has been the most appealing of the major currencies due to a lack of fresh downside pressure. Other safe haven currencies like the US Dollar and Swiss Franc had their appeal weighed by domestic factors.

Analysts expect the Bank of Japan (BoJ) will be hesitant to introduce too much monetary policy easing in the coming months either, despite more dovish policy from other major central banks.

At the end of the week, the Japanese Yen found fresh domestic support too. As well as being supported by safe haven demand, this morning’s Japanese growth rate report showed that growth is expected to have risen more than expected in Q2 2019.

According to Takuji Aida, Economist at Societe Generale, the data indicated that the resilience of Japan’s economy was growing:

‘The immune system of the Japanese economy is getting stronger, so it wouldn't fall back into a recession,’

GBP/JPY Exchange Rate Forecast: Could UK Data Help Recovery?

With no-deal Brexit and UK political uncertainties looking to deepen further as October approaches, the UK economy has been worsening as well.

The Pound is unlikely to find much solace in upcoming political developments unless there is a surprising shift in tone on Brexit or the chance of a soft Brexit is perceived to rise.

However, if next week’s UK data beats expectations, it could boost hopes that Britain’s economy will avoid recession in Q3, and would offer the Pound a little support.

The most important stats to watch out for will be Britain’s job market report on Tuesday, inflation stats on Wednesday and retail sales on Thursday.

The Japanese Yen, on the other hand, is most likely to be driven by global trade developments amid a lack of notable Japanese data asides from Thursday’s industrial production.

Investors could sell the Pound to Japanese Yen exchange rate even lower if US-China trade tensions worsen and lead to stronger market demand for safe havens.
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