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Pound to Japanese Yen (GBP/JPY) Exchange Rate Steady as Japan’s Leading Economic Index Beats Forecasts

July 27, 2020 - Written by John Cameron

GBP/JPY Exchange Rate Rangebound as Uncertainty Grows Over Japan’s Economy

The Pound to Japanese Yen (GBP/JPY) exchange rate held steady today, with the pairing currently trading around ¥135.120.

The Japanese Yen (JPY) failed to make any significant gains on the Pound (GBP) following this morning’s release of the latest Japanese Leading Economic Index for May, which failed to confirm forecasts and rose less-than-expected at 78.4.

Consequently, JPY investors are becoming increasingly concerned for Japan’s economic recovery from the damages of the coronavirus pandemic.

Japan has also seen a recent surge in Covid-19 cases. As a result, Japanese Yen (JPY) traders are remaining cautious as this could mean further uncertainty for the Japanese economy.

Shinichiro Kobayashi, economist at Mitsubishi UFJ Research and Consulting Co, said:

‘We have seen a spike of infection cases mainly in Tokyo. I’m concerned this will impact people’s consumption to a certain level.’

‘[I]t could slowly aggravate consumer sentiment. They would be more worried about catching the virus or passing it on others. Then they would voluntarily refrain from going out and spending money.’

Pound (GBP) Steady as Uncertain Economic Outlook

The Pound (GBP) struggled today after the think tank EY Item Club reported that the British economy could be held back from growth until 2024. Consequently, GBP investors have become concerned that the UK’s economic could suffer in the month’s ahead.

Howard Archer, chief economic advisor to the EY Item Club, was pessimistic in his analysis, saying:

‘The UK economy may be past its low point, but it is looking increasingly likely that the climb back is going to be a lot longer than expected. May’s growth undershot even the lowest forecasts. By the middle of this year, the economy was a fifth smaller than it was at the start. Such a fall creates more room for rapid growth later, but it will be from a much lower base.’

Meanwhile, uncertainty over Brexit is also weighing on Sterling. However, the EU’s Chief Brexit Negotiator, Michel Barnier, said that a UK-EU trade deal was, despite the stalemate, still possible.

GBP/JPY Forecast: Japanese Yen Could Head Higher on Positive Retail Sales

The Pound (GBP) investors will be looking ahead to Tuesday’s release of the latest CBI Distributive Trades Survey for July. If this remains in the doldrums, we could see Sterling suffer.

Japanese Yen (JPY) investors will be looking ahead to Wednesday’s release of the latest Japanese retail sales figures. Any improvement in the Japanese economy’s outlook would prove JPY-positive.

The GBP/JPY exchange rate will remain sensitive to news around UK-EU Brexit negotiations. If the UK and the EU settle on a possible trade deal, then we could see Sterling head higher.

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