September 8, 2020 - Written by Tim Boyer
STORY LINK GBP to JPY Exchange Rate Slumps Monthly Worst as No-Deal Brexit Fear Intensifies
The Pound’s selloff in reaction to revived no-deal Brexit fears only intensified today, as the British Pound to Japanese Yen (GBP/JPY) exchange rate experienced a massive plummet. What’s more, analysts believe there could be more losses ahead for the Pound if the UK government does not move away from threatening a no-deal outcome to Brexit. The Japanese Yen, on the other hand, is benefitting from safe haven demand today as market uncertainties worsen.
Last week saw GBP/JPY with largely mixed movement. Investors were hesitant to buy the Japanese Yen too much amid a strong rebound in demand for its rival, the US Dollar (USD). After opening the week at the level of 140.66, GBP/JPY briefly jumped higher before sliding again and only closing the week at the level of 141.08.
This week though, GBP/JPY has plummeted. The pair is seeing some of its sharpest movements in a while today, having lost a Yen and a half today alone.
At the time of writing, GBP/JPY is trending near lows of 138.17, the pair’s worst levels in about a month.
GBP Exchange Rates Plummet as No-Deal Brexit Fears Return to Focus
The Pound has been hit by market panic since yesterday, as uncertainties over the fate of the Brexit process return full force for the first time in months.
Markets had been focusing on the coronavirus pandemic, while UK-EU Brexit negotiations remained stuck in deadlocks and impasse for months.
While the UK-EU transition period is set to only last this year, there has reportedly been no notable progress on negotiations all year.
However, a weekend report that the UK government could undermine the Brexit withdrawal agreement has been seen as a no-deal Brexit threat to EU negotiators.
The Pound has been plummeting as markets digest the news, which has brought no-deal Brexit fears back to the forefront of Pound trade.
According to John Hardy, Analyst at Saxo Bank, markets have been too complacent on the risk of a no-deal Brexit:
‘In reaction to this latest turn, Sterling is beginning to absorb the implications but pricing still looks complacent here relative to the risks, perhaps as all of the previous “cliff edge” situations were avoided and the market believes this one will be too, fairly or not.’
What’s more, analysts believe the Pound has further to fall if Brexit fears don’t see any relief any time soon.
JPY Exchange Rates Capitalise on Market Uncertainty
The Japanese Yen is a safe haven currency, one that often benefits in times of global market uncertainty.
Recently, its movement has been mixed, as hopes for recovery from the coronavirus pandemic have left investors more willing to take risks instead of buying safe havens.
However, the Japanese Yen is seeing a surge in demand this week. The Japanese currency is rising on a combination of Brexit fears and US-China trade tensions, as well as fresh uncertainty around Japanese politics.
Markets are generally optimistic that a potential Yoshihide Suga government would be similar to a Shinzo Abe government. Suga is seen as the most likely candidate to succeed Abe.
However, Suga has also signalled that a snap election is possible, which has led to some uncertainty. This has actually bolstered the Japanese Yen’s appeal as a safe haven somewhat however.
Today also saw the publication of Japan’s final Q2 growth rate results. As these stats showed that the growth contraction was less severe than projected, the Yen’s appeal was further bolstered.
GBP/JPY Exchange Rate Forecast: Worsening Brexit Uncertainty Could Mean Bigger Losses
The Pound to Japanese Yen exchange rate could be in for even further losses, despite its massive falls this week already.
Investors are anxiously awaiting more Brexit developments. If tensions between the UK and EU continue to worsen, of if the UK government continues to threaten it could walk away from talks, the Pound may see continued losses.
According to Neil Wilson, Analyst at Markets.com:
‘Nonetheless it highlights the brinkmanship pursued by Johnson’s government in the talks – even suggesting that Britain could unilaterally rewrite the withdrawal agreement has raised the EU’s hackles and clearly raises the stakes as the two sides commence the 8th round of official talks today. Expect more negative headlines, more risk and more volatility’
Unless there is a surprise improvement in the Brexit outlook, investors may have little reason to buy the Pound back.
The Japanese Yen, on the other hand, could fall against the Pound if market safe haven demand weakens.
If the global coronavirus outlook improves, or other risk-factors recede, the Yen could shed some of its recent gains.
In terms of data, upcoming Japanese machinery stats are likely to be passed over as Pound to Japanese Yen exchange rate investors await Friday’s UK growth report.
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TAGS: Pound Yen Forecasts