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Pound to Japanese Yen (GBP/JPY) Exchange Rate Edges Higher as Fears Grow over Japan’s Economic Recovery

October 21, 2020 - Written by John Cameron

GBP/JPY Exchange Rate Rises as BoJ Urges ‘Swift and Appropriate’ Action

The Pound to Japanese Yen (GBP/JPY) exchange rate edged higher today, with the pairing currently trading around ¥136.850.

The Japanese Yen (JPY) fell against the Pound (GBP) following comments from the Bank of Japan (BoJ) that the Japanese Government and national needs to act fast to prevent delays to the nation’s economic recovery.

Makoto Sakurai, a board member at the BoJ, said the bank must take ‘swift and appropriate’ action to step the economic shock from the coronavirus pandemic.

Sakurai said:

‘If Japan’s economic recovery is delayed, that could hurt growth and the banking system. As such, it’s critical for us to act swiftly and appropriately as needed in coordination with the government and other central banks.’

However, with other world banks contemplating negative interest rates – and rising global Covid-19 cases – the safe-haven Japanese Yen has remained relatively steady against its peers this week.

Jason Daw, an economist at Societe Generale, commented on the Bank of Japan (BoJ):

‘The Bank of Japan’s not easing as fast as the Fed. On a relative basis, from a monetary policy perspective, the [Japanese Yen] could get a little bit stronger.’

Pound (GBP) Rises on Brexit Deal Hopes

The Pound (GBP) rose against the Japanese Yen (JPY) today following encouraging developments over Brexit, with the European Union (EU) apparently showing a willingness to compromise on a post-Brexit trade deal.

The EU’s Chief Brexit Negotiator, Michel Barnier, said to MEPs at the European parliament:

‘Despite the difficulties we’ve faced, an agreement is within reach if both sides are willing to work constructively, if they’re willing to compromise and if we’re able to make progress in the next few days on the basis of legal text; and if we’re ready for the next few days to resolve the sticking points, the tricky subjects because time is of the essence. And time is running out each and every day.’

As a result, GBP investors have welcomed the news, along with Downing Street, which has called the developments as ‘significant’.

Meanwhile, the Bank of England (BoJ) has again warned of an imminent joblessness crisis, which has left many GBP investors concerned for Britain’s economy as we enter the winter months.

Sir Dave Ramsden, the deputy governor at the Bank of England (BoE), commented:

‘I remain particularly concerned that we could also see structural headwinds to recovery in the labour market, with particular impacts on younger workers and those joining the workforce.

‘The negative impact on the supply side of the economy, or degree of scarring, could potentially be greater than the 1.5% we have assumed to date based on very preliminary work, a risk the MPC has previously highlighted.’

In UK economic data, today also saw the UK Public Borrowing figures soar to record highs of 36.1 billion in September.

GBP/JPY Forecast: Could a Brexit Breakthrough Boost Sterling This Week?

Japanese Yen (JPY) investors will be looking ahead to tomorrow’s release of August’s Japanese All Industry Activity Index.

Any improvement in the Japanese economy would prove JPY-positive.

Meanwhile, JPY will remain sensitive to global risk sentiment, as a result, we could see the Japanese Yen edge higher if the global Covid-19 situation worsens.

Brexit developments will continue to drive the GBP/JPY exchange rate this week.

We could see the Pound (GBP) edge higher if the UK and the EU make significant progress towards a post-Brexit trade deal.

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