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GBP/JPY Forecast: Pound to Japanese Yen Exchange Rate Sheds Most March Gains after Year Best

April 8, 2021 - Written by Ben Hughes

Despite hitting its best levels in over a year this week, the British Pound to Japanese Yen (GBP/JPY) exchange rate has plummeted since then, shedding most of the gains seen over the past month in a matter of days. A combination of factors are helping the previously weak Japanese Yen to capitalise against this week’s broad Pound weakness. Unless there is a shift of market sentiment over the coming day, the Pound could remain jittery unless next week’s UK growth data impresses investors.

Due to strong currency movement and market sentiment, GBP/JPY has seen huge movements in recent weeks. Last week saw GBP/JPY surge from 151.17 to 153.08 - a massive gain of almost two Yen.

Then when markets opened this week, GBP/JPY briefly touched on a fresh high of 153.37. This was the best level for GBP/JPY in a huge three years, since April 2018.

Since then though, GBP/JPY has plummeted as investors took profit from Sterling’s strong run. GBP/JPY has shed considerable ground and lost most of March’s gains. At the time of writing, GBP/JPY trends near a low of 149.93 - around three and a half Yen lower than this week’s best levels.

Pound (GBP) Exchange Rates Continue to Lose Ground as Markets Await Data

This week has been a mostly bearish one for the Pound. Investors sold the British currency at the beginning of the week after it hit its best levels against many major rivals.

This selloff was largely the result of profit taking. After weeks of surging performance, investors sold the expensive Pound to take profit from its best levels.

However, investors have continued to sell the Pound against some currencies. The Japanese Yen is one of those currencies that has continued to push the Pound lower throughout the week.

The latest UK data has had little notable impact on the Pound outlook.

Britain’s latest construction PMI data beat forecasts but was too low-influence to boost Sterling demand. This is despite the print coming in with its best figure in six years.

Some Analysts, including Steve Plaskitt from MHA, believe that the UK Chancellor’s Spring Budget played a big part in motivating the construction sector over the past month. He said:

‘The spring budget was a boon for both house buyers, who stand to benefit from the extension and phased ending of the stamp duty holiday, and house builders, who will hope that the government’s guaranteed support for 95% mortgages until the end of 2022 will drive demand.’

The data followed yesterday’s UK services PMI, which fell slightly short of expectations and also had no notable influence on the Pound’s movement.

Japanese Yen (JPY) Exchange Rates Capitalise on Rival Weakness to Recover

The Japanese Yen has seen broad weakness in recent months.

As a safe haven currency, it was less appealing than its safe haven rival the US Dollar. Concerns over how Japan was handling the coronavirus pandemic also weighed on the Yen’s appeal.

However, the Yen has seen a strong rebound in demand this week, clawing back significant losses. It has benefitted from weakness in both the Pound and the US Dollar.

The US Dollar has been sold back from its own highs in profit taking as well. Speculation that the Federal Reserve could take a more hawkish stance on monetary policy were doused by continued dovish signals from the bank in its meeting minutes this week.

As the US Dollar was sold from highs, the Yen advanced.

Recent Japanese data has been fairly strong as well, which has also supported the Yen’s recovery attempts. According to Valeria Bednarik, Chief Analyst at FXStreet:

‘Japan published its February Current Account which posted a surplus of ¥2916.9 billion, largely surpassing the ¥1996 billion expected. The Trade Balance for the same month improved to ¥524.2 billion from ¥-130.1 billion in the previous month. Also, March Consumer Confidence printed at 36.1, better than the previous 33.8. The Eco Watchers Survey for the current situation came in at 49, while the Outlook resulted in 49.8.’

GBP/JPY Exchange Rate Forecast: Markets Continue to Await Fed and Coronavirus News

For now, the Japanese Yen is likely to keep benefitting from Pound and US Dollar weakness. This could continue until there is a shift in market sentiment, which could be caused if there are any major coronavirus developments.

Investors will also be closely watching upcoming comments from Federal Reserve Chairman Jerome Powell. If Powell surprises markets with a more hawkish tone or any concerns over inflation, the US Dollar could surge and cause the Yen to weaken again.

That aside, investors will be awaiting next week, when more key UK data is due for publication.

Next Tuesday will see the publication of Britain’s February growth rate report. If the data shows a stronger than expected UK economy, the Pound is more likely to be resilient and advance again.

Other data to keep an eye out for next week includes UK production and Japanese machinery orders.

Of course, any surprises in the UK or Japanese coronavirus situations may also influence the Pound to Japanese Yen exchange rate.
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