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GBP to JPY Exchange Rate Slips from Best Levels in Almost a Year amid UK Recession Jitters

January 15, 2021 - Written by Tim Boyer

While Britain’s outlook has improved over the past week, the British Pound to Japanese Yen (GBP/JPY) exchange rate is sliding today. Investors are hesitant to keep buying the Pound as focus on the possibility of Britain seeing a ‘double-dip recession’ rises. Meanwhile, the Japanese Yen is gaining a little on market risk-aversion, but Japan’s coronavirus and economic outlooks continue to keep pressure on the Yen overall.

Since opening this week at the level of 141.03, GBP/JPY has been trending higher as the Pound benefitted from Bank of England (BoE) speculation.

In the middle of the week, GBP/JPY touched on a high of 142.18. This was the best level for the pair since March 2020, over 10 months ago.

At the time of writing on Friday, GBP/JPY is trending a little lower in the region of 141.54. It is still on track to sustain gains this week, but the pair is struggling to hold its best levels.

GBP Exchange Rates Unappealing as UK Recession Fears Return

Britain’s outlook has been improving this week, which has caused the Pound to rebound strongly for much of the week.

At the beginning of the week, speculation that the Bank of England (BoE) could introduce negative interest rates was dampened by fresh comments from BoE Governor Andrew Bailey.

Bailey’s comments showed a hesitation to introduce negative rates.

Sterling rose further in reaction to expectations for a bigger coronavirus vaccine rollout in Britain, and Friday’s UK data largely beat forecasts as well.

However, despite Friday’s data beating expectations, it was not enough to keep the Pound advancing.

This is because the data made it more evident to many analysts that Britain was likely headed for a double-dip recession. Growth was hit hard enough by the second coronavirus lockdown in November that the nation is expected to see even further contraction in the following months.

According to James Smith, Research Director at the Resolution Foundation:

‘The sharp GDP fall in November as England entered its second national lockdown suggests that the UK is in the midst of a double dip recession as it starts the year with even stricter restrictions.

But while the economic story today is of only the second-ever double dip recession on record, the story of the year will be a vaccine-driven bounce back in economic activity for sectors like hospitality and leisure.’

JPY Exchange Rate Sentiment Limited as Japan Struggles with Coronavirus Pandemic

The Japanese Yen is a safe haven currency. It is often more appealing in times of global market uncertainty.

In fact, the safe haven Yen has been benefitting from weakness in its rival the US Dollar (USD) a lot over the past year.

However, the Japanese Yen’s appeal has been worsening notably in recent months. As coronavirus vaccine hopes rise, investors are more willing to take risks again.

What’s more, Japan’s economy is being hit by the pandemic worse than expected recently.

Tokyo has been put into a state of emergency as the nation attempts to keep infections low. This state of emergency could be widened further outside of Tokyo as well.

Analysts are saying that Japan’s government has been underestimating the potential of the virus. According to Kentaro Iwata, an expert in infectious diseases:

‘The bottom line is that the Japanese government underestimated the potential impact of coronavirus infections,’

GBP/JPY Exchange Rate Forecast: More Advances May Be Ahead

Unless investors start to find safe haven currencies even more appealing, the Pound to Japanese Yen exchange rate could be in for more gains in the coming week.

Britain’s economic outlook, while still gloomy, has been improving slightly.

If there are any signs that Britain’s coronavirus situation is improving, this could help the Pound to continue its recent bullish trend and GBP/JPY could climb higher.

Sterling may also find some support if UK inflation, retail and PMI stats impress investors next week.

The Japanese Yen’s movement, on the other hand, will remain focused on Japan’s own worsening coronavirus situation.

The Yen may also be influenced by upcoming Japanese inflation stats and the Bank of Japan’s (BoJ) January policy decision on Thursday.

If the BoJ becomes more dovish due to the coronavirus pandemic, the Pound to Japanese Yen exchange rate is even more likely to trend higher as this would weigh on the Yen.
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