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GBP/JPY Forecast: Pound to Japanese Yen Exchange Rate Kept Near Fortnight Worst as Scottish Election Uncertainties Rise

April 16, 2021 - Written by Tim Boyer

Despite higher market sentiment this week, the Japanese Yen has been able to capitalise on weakness in rivals and the British Pound to Japanese Yen (GBP/JPY) exchange rate has been trending lower as a result. Investors are hesitant to buy the Pound as new uncertainties rise about the stability of UK politics with Scottish elections approaching soon. Meanwhile, some analysts believe the Japanese economic outlook is improving.

Since markets opened this week, GBP/JPY movement has been relatively narrow. GBP/JPY opened at the level of 150.34 and has been largely trending lower since then.

The Pound attempted a recovery rebound but it didn’t last. Instead the Yen benefitted from market sentiment and GBP/JPY trended lower.

Towards the end of the week, GBP/JPY touched on a low of 149.40. This was the worst level for the pair in a fortnight. GBP/JPY trended close above those lows in the region of 149.98 at the time of writing.

Pound Sterling (GBP) Exchange Rates Unappealing amid Fresh UK Political Uncertainties

The Pound attempted to rebound earlier in the week, but analysts have perceived all the positive UK news as having been priced into the Pound already.

As a result of this, Sterling lacked the drive to climb higher, and it struggled against stronger rival currencies throughout the week.

The latest UK data was fairly impressive, but it was not surprising enough to cause a notable improvement in the UK outlook.

With good news priced into Sterling and other major economies accelerating recovery from the coronavirus pandemic, the Pound’s shine has softened somewhat.

On top of this, UK political uncertainties revolving around Brexit are rising once again, throwing some fresh uncertainty into the UK outlook.

In particular, markets are becoming more anxious about the upcoming Scottish Parliamentary Election on the 6th of May. The Scottish National Party (SNP) is expected to perform well and make a new push for Scottish independence.

According to Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets:

‘Some attribute the position lightening to the positive UK vaccine news being fully discounted, though we remain unconvinced by this explanation alone. More likely is that Sterling is being impacted by a dose of political risk ahead of the May 6th Scottish election,’

These factors are weighing on the Pound and making it easier for the Yen to push GBP/JPY lower.

Japanese Yen (JPY) Exchange Rates Strengthen as Yen Benefits from US Dollar Weakness

The US Dollar (USD) is the Japanese Yen’s biggest rival, and the Yen often benefits from US Dollar weakness and vice versa.

As the US Dollar has plummeted on fading Federal Reserve speculation this week, investors still looking for safe havens have been buying the Japanese Yen instead.

While weakness in the US Dollar has been the primary cause of Japanese Yen gains this week, the Yen is also benefitting from some signs of optimism about Japan’s economic outlook.

Some economists believe that Japan’s inflation could rise soon, as risks are skewed to the upside amid global commodity strength and an overall weaker Yen.

According to Hiromichi Shirakawa, Vice Chairman and Chief Economist for Japan at Credit Suisse:

‘There's upside risks to Japan's inflation because of rising commodity and oil prices, as well as the effect of a slightly weaker-than-expected Yen,

But any rises in inflation could be temporary and moderate’

Bank of Japan (BoJ) Governor Haruhiko Kuroda has also said in the past week that the weak Yen has the potential to boost Japan’s economy.

GBP/EUR Exchange Rate Forecast: Inflation Data Could Influence Central Bank Stances

Next week will see busier economic calendars from both the UK and Japan, and surprising data could influence the Pound and Yen outlooks.

Earlier in the week, Japanese trade balance and UK job market data will be published. At the end of the week, PMI projections from April will give investors a better idea of how the UK and Japanese economies are performing amid the pandemic this month.

However, some of the more influential data of the week could be inflation rate results from March. UK inflation will be published on Wednesday, and Japanese inflation is due on Friday.

Unexpected surges in price pressures could have an impact on central bank speculation. If UK inflation is far stronger than expected, the Bank of England (BoE) would come under fresh pressure to tighten UK monetary policy.

Similarly though, a surge in Japanese inflation could be good news for the Yen and cause the Pound to Japanese Yen (GBP/JPY) exchange rate to fall further next week.
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