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First Pre-Christmas General Election in a Century Leaves Pound Sterling Japanese Yen (GBP/JPY) Exchange Rate Flat

October 30, 2019 - Written by John Cameron

Pound Japanese Yen (GBP/JPY) Exchange Rate Muted as December Election Likely to Bring Further Uncertainty

The Pound Sterling Japanese Yen (GBP/JPY) exchange rate was left flat on Wednesday, and the pairing is currently trading at around ¥140.2810.

Sterling was supported by hopes the UK will avoid crashing out of the European Union without a deal as the bloc granted the UK a three-month ‘flextension’.

Meanwhile, political parties began to prepare themselves for the first pre-Christmas December general election in nearly a century, as on Tuesday evening lawmakers approved legislation for an early election.

Today will see the legislation begin its passage through the House of Lords, although it is likely this will make it through with little push back.

Prime Minister Boris Johnson has suggested this will break the current Brexit deadlock in parliament, and is likely to give him a fresh mandate for his withdrawal agreement in order to leave the bloc by the new deadline.

While news the UK will hold a December election caused Sterling to edge up overnight, GBP settled on Wednesday as the election will likely bring further uncertainty.

Commenting on this, Ray Attrill, head of FX strategy at National Australia Bank noted:

‘Sterling has struggled to hold onto modest knee-jerk gains because the outcome of an election is highly uncertain.’

Japanese Recession Fears Weigh on the Yen

On Tuesday, data revealed that Japanese retail sales rose at the strongest pace in five-and-a-half years in September.

Consumers rushed to purchase big-ticket items to avoid a rise in Japan’s sales tax, which sparked concerns that spending is likely to decrease in the coming months.

Japan’s national sales tax increased from 8% to 10% on 1 October, seen as a crucial part of fixing the country’s heavy public debt that is more than twice the size of the economy.

However, the Japanese Yen was left flat against Sterling as some analysts worry the twice-delayed tax increase could tip the economy into recession.

US-China Trade Optimism Leaves Japanese Yen (JPY) Flat

US-China trade optimism likely sparked an upswing in the Japanese Yen this week, as Washington and Beijing appeared to be getting closer to signing Phase One of a trade deal.

Trade optimism may cause the Bank of Japan (BoJ) to hold off on cutting rates, and give the bank room to save its limited ammunition.

The US President along with other officials such as US Treasury Secretary Steven Mnuchin have noted that progress is being made as tensions have continued for over a year.

However, on Tuesday an anonymous US administration official revealed an interim trade deal may not be completed in time for President Trump and his Chinese counterpart, Xi Jinping to sign at next month’s summit in Chile.

Although, the official stressed this does not mean the accord is collapsing, and stated:

‘If it’s not signed in Chile, that doesn’t mean that it falls apart. It just means that it’s not ready.

‘Our goal is to sign it in Chile. But sometimes texts aren’t ready. But good progress is being made and we expect to sign the agreement in Chile.’

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

Looking ahead to Thursday, the Japanese Yen (JPY) is likely to remain under pressure as the Bank of Japan (BoJ) is expected to leave rates unchanged, waiting for a clearer deterioration of economic conditions before slashing rates.

If Governor Haruhiko Kuroda signals the bank will ease policy in the future amidst a wave of interest rate cuts from around the globe, the Yen will likely fall against Sterling (GBP).

The bank is expected to make the decision just hours after the US Federal Reserve is expected to slash rates for the third time in a row. However, the BoJ faced a similar situation in September but opted to leave rates on hold.

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