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GBP to JPY Exchange Rate Surges despite Shinzo Abe Resignation Boost to Safe Haven Demand

September 1, 2020 - Written by Tim Boyer

Despite the Japanese Yen’s gains against many key currencies in recent sessions, the British Pound to Japanese Yen (GBP/JPY) exchange rate continues to see strong gains. Investors continue to find the Pound appealing as it benefits from US Dollar (USD) weakness, combined with higher optimism over Britain’s coronavirus situation. Meanwhile the Japanese Yen is struggling for direction as markets continue to digest the past week’s big Japanese political developments.

Last week saw strong gains for GBP/JPY, with the pair jumping over two Yen from the level of 138.48 to 140.66 throughout the week. This week so far the pair has only continued to advance.

On Tuesday, GBP/JPY touched on a high of 142.65 – almost another two Yen higher. This also marked the best level for GBP/JPY in over half a year, since February. Overall, the Pound’s movement against the Yen has been similar to its movement against the US Dollar.

At the time of writing on Tuesday afternoon, GBP/JPY trended closer to the level of 142.55 as it slipped back slightly from its best levels.

GBP Exchange Rates Up despite Mixed UK Manufacturing Report

Investors continued to buy the Pound this week, despite a lack of solid support for the British currency.

The Pound is benefitting from weakness in the US Dollar (USD). As the US coronavirus outlook remains concerning and US monetary policy appears to take a dovish shift, investors continue to reassess views of the US economic outlook.

The US outlook becomes less and less appealing, while the UK outlook sees signs of improvement. The UK coronavirus situation has been calming, which is helping Sterling to capitalise against the US Dollar’s losses.

On top of this, the Pound is benefitting from hopes around coronavirus vaccine progress. AstraZeneca, a British-based company, is advancing trials into the US. According to Yohay Elam, Analyst at FXStreet:

‘The project is considered one of the world's most advanced ones and hopes for resolving the crisis are sending stocks up and the Dollar down. Yet most importantly, the underlying reason for the current trends comes from the Fed. The effect of the bank's dovish shift – allowing inflation to overheat before raising rates – continues in full force.’

As a result of this, the Pound has been climbing despite the latest UK data coming in mixed.

Today’s UK manufacturing PMI came in at 55.2 rather than the expected 55.3.

JPY Exchange Rates Slip Again as Markets Digest Shinzo Abe Resignation

The shock announcement that Japanese Prime Minister Shinzo Abe would resign due to health issues rattled markets at the end of last week.

The Japanese Yen, which is a safe haven currency, surged in reaction to the news. Investors rushed into the Yen as they looked to avoid risks amid the new political uncertainty.

However, while the Yen briefly saw a surge on safe haven demand, its gains were ultimately limited. In fact, overall the Pound saw big advances against the Yen last week and the pair continues to climb this week.

This is partially because markets are calming on the Abe resignation news. Reports suggest that Chief Cabinet Secretary Yoshihide Suga is being seen as most likely to become Japan’s next Prime Minister in this month’s leadership vote.

Suga’s policies are being seen as consistent with Abe’s, so markets are becoming more hopeful that there will not be a sudden change in policy. According to Tetsuro Ii, President of Commons Asset Management:

‘Suga's stance will be to support the economy as much as possible while trying to avoid the collapse of the medical system,

It's not that the stock market hugely likes him but he is well accepted.’

GBP/JPY Exchange Rate Forecast: August PMI Results Ahead

The Pound to Japanese Yen exchange rate could be in for even further gains in the coming days, if UK data impresses investors and Japan’s outlook sees no fresh shocks.

Thursday will see the remainder of most of this week’s UK and Japanese stats.

Japanese services and composite PMI figures from August will be published during Thursday’s Asian session. If the data is even weaker than expected, it could lead to Japanese Yen losses.

However, the Japanese Yen could be even less appealing if markets continue to calm over the resignation of Prime Minister Shinzo Abe.

If markets become more confident that Mr Abe could be succeeded by a Yoshihide Suga government, the Yen’s appeal as a safe haven could soften and make it easier for GBP/JPY to see further gains.

UK services and composite PMI data from August is also due on Thursday, as well as a speech from Bank of England (BoE) Governor Andrew Bailey.

If UK services data beats forecasts, this is likely to give a solid boost to the Pound to Japanese Yen exchange rate’s appeal.
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