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GBP to JPY Exchange Rate Rebounds as Gloomy US Outlook Dampens Safe Haven Demand

August 18, 2020 - Written by John Cameron

Despite a lack of strong support for the Pound so far this week, the British Pound to Japanese Yen (GBP/JPY) exchange rate is rebounding from lows today. Pound investors are hoping for notable Brexit developments over the next week, but the British currency is also benefitting from market concerns over the Japanese and US economic outlooks. While the Japanese Yen is a safe haven currency, it is being dragged lower by the broad weakness of the US Dollar (USD) as well.

GBP/JPY has been struggling to sustain the advances seen last week. The Pound benefitted from slightly higher risk sentiment and GBP/JPY climbed from 138.26 to 139.44 throughout the week.

Towards the end of last week, GBP/JPY touched on a high of 140.15 - the best level for the pair in almost half a year since the end of February.

Since then though, GBP/JPY has been under pressure again and has struggled to hold its ground. Yesterday saw GBP/JPY slip, and though the pair is rebounding today it still trends below the week’s opening levels in the region of 139.28.

GBP Exchange Rates Rebound as Brexit Negotiations Resume

Today is another jittery day of mixed performance for the Pound. Investors are buying the British currency in anticipation of the possibility of Brexit developments in the coming weeks, but other factors continue to weigh heavily on the British currency’s outlook.

Britain’s coronavirus situation and the economy’s weathering of the pandemic remain big concerns keeping pressure on the Pound. On top of this, no-deal Brexit fears are likely to ramp up again in the coming months as 2020 heads to an end.

UK-EU Brexit negotiations are resuming today. Big developments are not expected, but hopes for developments did help buoy the Pound slightly.

Demand for Sterling was highly limited overall though. Today’s developments in UK retail only put further pressure on a gloomy UK outlook.

UK retail giant Marks and Spencer announced that it was cutting 7000 jobs as it restructured from the pandemic. According Dave Gill, National Officer at Usdaw:

‘This job loss announcement is yet another devastating blow for M&S staff and yet another bombshell for our high streets. The Government has a clear choice; do they want to see the high street go to the wall, or do they want to help save it?

What the retail sector needs now is a tripartite approach of the Government, unions and employers working together to develop a much needed retail recovery plan. We have long called for an industrial strategy for retail to help a sector that was already struggling before the Coronavirus emergency. Now the situation is much worse.’

JPY Exchange Rates Remain Unappealing despite Rival Weakness

The weakness of the US Dollar (USD) has been one of the big stories of forex markets in recent weeks. Despite this though, the Japanese Yen has been unable to keep capitalising.

This is despite the Japanese Yen being among the US Dollar’s (USD) biggest rivals. The Japanese Yen is also a safe haven currency that often benefits from safe haven demand when the US Dollar is unappealing.

Concerns that US monetary policy will remain ultra low for an extended period of time have actually dampened market demand for safe havens though. Fresh hopes for coronavirus recovery in some major economies, as well as strong trade data, has kept risk sentiment buoyed.

As a result, the Japanese Yen’s safe haven appeal has been limited.

On top of this, Japan’s domestic outlook hasn’t been particularly supportive for Yen demand.

Last week saw the publication of Japan’s Q2 Gross Domestic Product (GDP) growth rate report. Japanese growth was even weaker than expected, revealing a huge Q2 contraction.

According to Ken Wong, Asia Equity Portfolio Specialist at Eastspring Investments:

‘(Japan’s) second-quarter GDP reading was well expected,

It is unfortunate but it’s one of those situations where, you know, I think most people had anticipated,

We are expecting to see a revival in third quarter GDP, to some extent, when you compare it on a quarter-on-quarter basis.’

GBP/JPY Exchange Rate Forecast: Brexit Negotiations and Risk-Sentiment in Focus

UK-EU Brexit negotiations are set to resume for August talks today. This round of talks will last through the week, and markets are hoping for some kind of solid development as time runs out to reach a deal.

If there are any signs in the coming days that negotiators are getting closer to reaching a deal, the Pound is more likely to see a solid boost in demand.

On the other hand though, if there are no surprises and the deadlock persists, the Pound outlook will be little changed. In fact, the British currency could slide again if concerns of a possible no-deal Brexit return to focus in the coming weeks.

While Brexit talks will remain the focus for GBP/JPY, potential shifts in the global coronavirus outlook or risk-sentiment may prove influential for the Yen.

For example, the Yen could see stronger demand if global coronavirus concerns worsen, as it would benefit from safe haven demand.

Upcoming data could also influence GBP/JPY. Japanese trade and UK inflation data will be published on Wednesday. Japanese inflation and UK retail stats on Friday will round out the week for the Pound to Japanese Yen exchange rate.
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