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GBP to JPY Exchange Rate Fails to Hold Ground as Geopolitical Tensions Keep Safe Havens Appealing

September 20, 2019 - Written by Frank Davies

Despite today’s soft Brexit speculation and disappointing Japanese inflation rate stats, the British Pound to Japanese Yen (GBP/JPY) exchange rate has fallen back from weekly highs and could shed most of this week’s relatively volatile gains before markets close for the week. Continued market jitters amid geopolitical tensions are keeping safe haven currencies like the Japanese Yen appealing.

Since opening this week at the level of 134.96, GBP/JPY has seen volatility and mixed movement. Safe haven demand has kept the Yen supported despite Brexit hopes bolstering Sterling.

On Friday, GBP/JPY briefly touched on a two month high of 135.63, before sliding again and trending closer to the level of 135.05 at the time of writing. This put it closer to the week’s opening levels again.

Still, the Pound has been surprisingly sturdy overall despite a lack of notable optimistic news on Brexit or Britain’s economy.

GBP Exchange Rates Attempts at Rallying Dampened by Disagreements over Irish Border

A lack of solid developments over Brexit has not stopped investors from buying the Pound in the hopes of a softer Brexit being possible this week.

Despite the UK government’s claims that Brexit will happen on the 31st of October with or without a deal, investors have been feeling a little more bullish on the Pound and have been eager to buy it on any optimistic signs.

On Thursday night, European Commission President Jean-Claude Juncker said that he was doing whatever he could to make a Brexit deal happen, and said that the Irish backstop was not a necessity so long as the UK government suggested a workable alternative.

The Pound briefly soared as investors became hopeful on these comments.

However, later on Friday, the Pound’s rally was cut short as officials from Ireland warned that a Brexit deal was not close after all.

Simon Coveney, Ireland’s foreign minister and Deputy Prime Minister, said on Friday:

‘We need to be honest with people and say that we’re not close to that deal right now,’

Overall, while investors seem eager for the Pound rally to continue, a lack of real optimism over Brexit and Britain’s economic outlook have kept the British currency’s appeal limited.

JPY Exchange Rates up despite Japanese Inflation Rate Disappointment

The Japanese Yen has had a fairly solid week, avoiding major losses against the Pound despite the Pound’s gains on Brexit hopes for most of the week and the lack of strong supportive Japanese data.

While Japan’s August trade deficit surplus was lighter than forecast, Japan’s Consumer Price Index (CPI) inflation rate fell short of expectations in August and failed to print the improvement in inflation that economists were predicting.

Japanese core inflation slowed to 0.5% as expected year-on-year, but the overall yearly inflation rate came in at 0.3% rather than the expected rise to 0.6%.

It marked the lowest level of Japanese inflation since July 2017.

The Yen has instead been benefitting from market demand for safe haven currencies.

The Yen is one of the market’s favoured safe havens, often climbing in times of global uncertainty. As a result, it has benefitted from this week’s Saudi Arabia-related jitters following a drone attack on Saudi oil facilities last weekend.

On top of this, concerns that the US-China trade war won’t end any time soon despite talks resuming also boosted the safe haven Yen.

The Bank of Japan’s (BoJ) latest policy decision saw the bank avoid a dovish tone, so far holding off on following the Federal Reserve with further monetary policy easing. This further supported the Japanese Yen towards the end of the week.

GBP/JPY Exchange Rate Forecast: Brexit and Bank of Japan Speculation to Drive Pair

Amid quieter UK and Japanese economic calendars next week, the Pound to Japanese Yen exchange rate will be driven more by shifts in political sentiment and central bank speculation next week.

As always, UK politics and Brexit remain the biggest potential influences for the Pound’s movement.

Britain’s Supreme Court will announce its decision on whether the government’s prorogation plans are unlawful at some point early in the week. If the announcement impacts the government’s Brexit plans it’s likely to cause big Pound movement.

Of course, any other developments in politics or Brexit either from the UK or EU will remain a concern for Pound investors.

The Japanese Yen, on the other hand, will remain driven by safe haven demand. If geopolitical tensions between the US and China or regarding Saudi Arabia soften, the Yen will be less in demand.

An upcoming speech from Bank of Japan (BoJ) Governor Haruhiko Kuroda will also be in focus for JPY investors next week.

Kuroda’s speech will be held on Tuesday. If he shows any signs that last week’s poor Japanese inflation stats had an impact on the bank outlook, the Pound to Japanese Yen exchange rate would find it much easier to advance next week.
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