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Expectations of BoJ Rate Cut Buoys Pound Sterling Japanese Yen (GBP/JPY) Exchange Rate

September 13, 2019 - Written by John Cameron

Pound Japanese Yen (GBP/JPY) Exchange Rate Rallies on BoJ Rate Cut Fears

The Pound Sterling Japanese Yen (GBP/JPY) exchange rate rallied and the pairing is currently trading at around ¥134.5310.

The Japanese Yen was left under pressure on Friday, falling to a six-week low against the US Dollar (USD) as demand for safe-haven assets decreased.

On Thursday, the European Central Bank (ECB) surprised markets by resuming its previously discarded quantitative easing programme.

The bank also cut its main deposit rate to an all-time low of -0.5%.

However, the cuts are not likely to end with the ECB as next week the US Federal Reserve is expected to slash its interest rate for the second time this year.

This has also put further pressure on the Bank of Japan (BoJ) to follow the Fed, dampening Yen sentiment.

Commenting on this, chief economist at Sony Financial Holdings, Masaaki Kanno noted:

‘The ECB and Fed are in deep easing mode. To prevent the Yen from rising, the BoJ needs to keep alive market expectations that it, too, will ramp up stimulus fairly soon.’

Sterling Rallies as No-Deal Fears Continue to Ease

Sterling rallied against the Yen as Brexit no-deal fears continued to ease despite yesterday’s comments from European Central Bank (ECB) President Mario Draghi.

Draghi noted the likelihood of the UK crashing out of the EU without a deal had increased, however investors cut their Sterling short positions.

While Prime Minister Boris Johnson has said he would rather be ‘dead in a ditch’ than ask for an extension to Brexit, parliament’s move to block a no-deal in October buoyed Sterling.

Commenting on this, Viraj Patel, FX and global macro strategist at Arkera said:

‘All those Boris shorts are beginning to bail as they realise he can’t deliver no-deal.’

Added to this, Sterling received an upswing of support as reports suggested the Democratic Unionist Party (DUP) was beginning to soften its stance on the Irish backstop.

The Times reported the party had agreed to ‘shift its red lines’ as part of a deal to replace the backstop.

However, DUP leader, Arlene Foster tweeted the ‘UK must leave as one nation’ and added ‘anonymous sources lead to nonsense stories’.

Pound Japanese Yen Outlook: Will a Dovish BoJ Weigh on JPY?

Looking ahead to next week it is likely the Pound (GBP) will remain vulnerable to any further Brexit news.

If the likelihood of a Brexit no-deal continues to decrease, it is likely this will buoy the Pound.

Meanwhile, the Japanese Yen (JPY) will remain under pressure ahead of the Fed and BoJ interest rate decisions.

If both banks decide to slash rates next week, it is likely the Pound Japanese Yen (GBP/JPY) exchange rate will rise.

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