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GBP to JPY Exchange Rate Avoids Losses Ahead of Anticipated Central Bank Developments

September 18, 2019 - Written by David Woodsmith

Despite a surge in demand for safe haven currencies like the Japanese Yen at the beginning of the week, the British Pound to Japanese Yen (GBP/JPY) exchange rate has already recovered those losses and has been more or less holding its ground ahead of expected central bank developments in the coming days.

Brexit hopes and higher risk-sentiment made it easy for GBP/JPY to register strong gains last week, climbing over three Yen from 131.30 to 134.96 throughout the week.

This week’s movement has been comparatively limited so far, but GBP/JPY did touch on a two month high of 135.36 yesterday before cooling today. At the time of writing on Wednesday afternoon, GBP/JPY trended near the level of 134.95 – just near the week’s opening levels.

The next few days may be busy ones for GBP/JPY movement. The Federal Reserve will hold its September policy decision this evening, with the Bank of Japan (BoJ) following overnight and the Bank of England (BoE) decision tomorrow.

GBP Exchange Rate Strength Limited by Brexit Uncertainty and Slower UK Inflation

Demand for the Pound has been broadly mixed this week, being sold from highs on Monday before rebounding on Tuesday afternoon, and then weakening again today.

Investors sold the British currency amid concerns that a no-deal Brexit was still a major possibility, but speculation that the rally the Pound saw last Friday could resume at some point left investors hesitant to sell the currency much.

Hopes for a slightly softer Brexit have also supported the Pound this week, amid speculation that the UK government could soften its position on Brexit.

This was despite comments from UK Prime Minister Boris Johnson that Brexit would happen on the 31st of October with or without a deal.

Still, persisting no-deal Brexit jitters combined with weaker than expected UK inflation results made it difficult for GBP/JPY to keep advancing today.

Britain’s August inflation rate fell short of expectations in all notable prints, indicating that despite the weakness in Sterling, UK price pressures slowed to their lowest levels since 2016.

According to Jason Lennard from the NIESR thinktank, Brexit uncertainty is part of the weaker inflation:

‘Firms are probably waiting to see beyond 31 October before adjusting prices. The slowing of inflation was widespread, falling in 10 of the 12 regions of the United Kingdom with the biggest drops in Northern Ireland and Wales.’

The data had no major influence on Bank of England (BoE) speculation, but ultimately gave Pound investors nothing to be bullish over either.

JPY Exchange Rates Struggle for Support as Safe Haven Demand Fades Ahead of Central Bank News

It’s been a volatile week for the Japanese Yen as well. Investors found the safe haven currency appealing immediately after markets opened on Monday, amid reaction to Saturday’s shock drone attack on Saudi Arabia’s biggest oil processing plant.

The plant accounted for a whopping 5% of the globe’s oil output, leaving markets in a panic that there could be severe oil shortages. Oil prices soared and investors bought safe haven currencies.

Oil jitters did soften slightly on Tuesday though, as Saudi Arabia officials indicated that oil output would return to normal by the end of the month.

Safe haven demand has unravelled since then, causing the Japanese Yen to give up its early-week gains.

The Yen also failed to benefit from today’s data, despite a smaller than expected trade deficit and trade export figures beating forecasts.

While the data beat forecasts, it also marked the ninth consecutive month of drops for Japanese exports. Overall, the data and lower safe haven demand made it easier for GBP/JPY to avoid losses.

GBP/JPY Exchange Rate Forecast: Central Bank News to Dominate Thursday Movement

Central bank news is already influential enough for currency movement, but the news expected over the next day could be very influential for the Pound to Japanese Yen exchange rate in particular.

The Federal Reserve’s September policy decision will be held this evening. The Fed is expected to cut US interest rates, and the tone the bank takes on the US economic and monetary policy outlooks are likely to be the market focus.

If the Fed ramps up dovish rhetoric, it could worsen global recession fears and US interest rate cut bets.

This may lead to Japanese Yen gains as the Yen would benefit from US Dollar (USD) weakness, but if Bank of Japan (BoJ) speculation becomes more dovish as a result then the Yen may weaken instead.

Speaking of the Bank of Japan, the BoJ will be holding its September policy decision overnight. If the bank becomes more dovish due to the recent global economic and trade uncertainties, the Yen is even more likely to weaken.

The Bank of England’s (BoE) September policy decision tomorrow may not be quite as influential unless the bank shows an unexpected shift in tone, but any news from the bank will still be noteworthy for investors.

Failing any surprises from the BoE, tomorrow’s UK retail sales or any Brexit developments could influence the Pound to Japanese Yen exchange rate as well.
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