GBP/JPY Forecast: Pound to Japanese Yen Exchange Rate Slips from 2-Year-Best as Yen Rebounds

March 19, 2021 - Written by Frank Davies

STORY LINK GBP/JPY Forecast: Pound to Japanese Yen Exchange Rate Slips from 2-Year-Best as Yen Rebounds

After opening this week at the level of 151.72, GBP/JPY has seen mixed movement. Throughout the week, GBP/JPY has fluctuated between lows of 150.86 and highs of 152.51.

The high of 152.51 was actually the best level for GBP/JPY in around three years, since early-2018.

GBP/JPY has since slipped from that best level. At the time of writing on Friday, GBP/JPY is trending just below the week’s opening levels in the region of 151.52 - which also means it is not too far below its best levels in years before markets close for the week.

Pound (GBP) Exchange Rates Find Some Support in Forecast-Beating Public Borrowing

The Pound’s rally has slowed and the British currency saw more mixed movement over the past week. However despite this, Sterling remains a broadly appealing currency due to expectations that Britain will recover from the coronavirus pandemic.

Sterling found some late-week support in today’s UK public borrowing results, which were a little better than expected.

According to Thomas Pugh, UK Economist at Capital Economics:

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‘February’s public finances figures showed that borrowing is course to match the OBR’s 2020/21 forecast of £355bn. But if we are right in thinking the economic recovery will be faster and fuller than the OBR expects, borrowing will undershoot the OBR’s forecasts further ahead’

This news helped the Pound to avoid late-week losses and steady before markets closed for the week.

It follows UK confidence data, which also beat forecasts earlier this morning, and the more optimistic tone taken by the Bank of England (BoE) yesterday.

Ultimately, these developments had little impact or surprise for the Pound outlook. They weren’t enough to keep the Pound at its best levels, but did make it easier for the British currency to avoid further losses.

Japanese Yen (JPY) Exchange Rates Firm amid Bank of Japan’s (BoJ) March Decision

The Japanese Yen has seen poor performance lately. As a safe haven currency, it has been weak as global recovery hopes rise. On top of this, it has also been weak due to strength in its rival the US Dollar (USD) and concerns about Japan’s economic outlook.

However, the Yen has finally been showing signs of steadying this week.

Demand for the Yen improved in the middle of the week, when the Federal Reserve took a notably dovish stance on US monetary policy.

The Fed’s stance led to losses in the US Dollar, which boosted demand for the Yen in return.

Since the middle of the week, the Yen has also been benefitting a little more from safe haven demand, as some major economies show signs that coronavirus lockdown measures may be extended.

Today also saw the Bank of Japan (BoJ) hold its March policy decision. As expected, the bank left monetary policy frozen, with interest rates being kept at –0.1%.

The bank did widen the band for allowing long-term interest rates to move around its target however. According to BoJ Governor Haruhiko Kuroda:

‘I'm not thinking of widening the band for long-term yields ... We allowed long-term rates to move up and down 0.25% around our target to enhance market functions. But we will ensure any moves won't diminish the impact our yield curve control policy has in stimulating the economy.

If you ask me whether the BOJ could reduce its bond buying in market operations to prevent yields from falling too much, I will say no, we don't have such a plan.’

GBP/JPY Exchange Rate Forecast: UK Job Market Report Next Week

Next week’s economic calendar will be a little busier, and markets will look towards how data shows economies are weathering the coronavirus pandemic.

Tuesday will see the publication of Britain’s latest job market report. As one of the week’s most influential datasets, surprising UK job data could influence the UK coronavirus and economic outlooks if they surprise investors.

Wednesday will follow with UK inflation data and PMI projections for March. The PMIs will give investors a better idea of how Britain’s economy has been weathering the pandemic this month.

Japanese PMI projections are due on Wednesday as well. Stronger PMIs or more optimistic meeting minutes could support the Japanese Yen.

Of course, Pound to Japanese Yen exchange rate investors will remain focused on domestic coronavirus pandemic developments as well.

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