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GBP/JPY Forecast: Pound to Japanese Yen Exchange Rate Could Fall Towards Monthly Worst

April 23, 2021 - Written by Minesh Chaudhari

Demand for the Japanese Yen has been fairly strong this week, but the British Pound to Japanese Yen (GBP/JPY) exchange rate was buoyed a little by UK data before markets closed for the week. Both currencies are benefitting from the global market outlook, but analysts predict the Pound is likely to remain broadly appealing going forward as well. Still, if upcoming Japanese data and coronavirus developments impress investors, the Yen may have an easier time holding its ground.

After opening this week at the level of 150.53, GBP/JPY saw volatile and mixed movement. A brief rise in Yen rivals helped GBP/JPY to strike a fortnight best of 151.91 earlier in the week, but the pair has since tumbled again.

In fact, last night saw GBP/JPY touch on a low of 149.30 - the worst level for the pair in almost a month.

At the time of writing on Friday, GBP/JPY is trending just above these highs, in the region of 149.72.

Pound Sterling (GBP) Exchange Rates Find Support in Today’s Strong UK Data

After days of mixed trade on mixed or unsurprising UK data, Friday rounded out this week with a bunch of stronger than expected UK ecostats and boosted market appetite for the Pound.

UK retail sales results from March and PMI projections for April both printed well above expectations.

The data made markets more confident that Britain would see a strong recovery from the coronavirus pandemic later in the year, which bolstered late-week demand for the Pound and helped it to claw back some ground against a strong Japanese Yen.

UK retail sales were especially impressive, showing a bigger than expected jump in economic activity as the UK economic gradually reopened. Monthly figures rose to 5.4%, well above the expected 1.5%, and the yearly figure surged to an impressive 7.2%.

Speaking about today’s strong data, Dean Turner, Economist at UBS Global Wealth Management, showed confidence that the Bank of England (BoE) could be pressured into being more hawkish soon. He said:

‘As today’s retail sales numbers signal, consumers and firms stand ready to unleash some of the pent-up demand which has been accumulated in recent months. Encouragingly, the outlook for the labour market continues to improve, with the surveys signalling the fastest rate of job creation since 2017. The news on prices is consistent with the ongoing rise in inflation that we are likely to see in the months ahead. In our view, this will not concern policymakers at the Bank of England too much, but will likely keep them in a hawkish mood.’

Japanese Yen (JPY) Exchange Rates Benefitting from Weakness in Rivals

The Japanese Yen continues to be driven largely by global market sentiment and rival strength, as has been the case for the safe haven currency in recent months.

As a result, continued weakness in the US Dollar (USD), the Yen’s biggest rival, is translating to broad Yen strength and has helped it to see much stronger performance in recent weeks.

Uncertainty is rising about a surge of coronavirus infections in Asia, which is causing some investors to look away from risk-taking and buy safe havens.

However, amid a lack of surging US price pressures and expectations for a dovish Federal Reserve, the Japanese Yen is more appealing as a safe haven than the US Dollar is.

US Dollar weakness and Pound weakness helped the Yen to push GBP/JPY lower over the past week.

Japan’s domestic outlook remains mixed though, and price pressures remain low as well. Japan’s March inflation rate report showed more deflation, with the yearly figure at –0.2%.

GBP/JPY Exchange Rate Forecast: Both Currencies Could Keep Strengthening

For now, the Pound to Japanese Yen exchange rate remains under pressure. However, analysts believe that both currencies have the potential to strengthen further going forward.

While next week’s UK economic calendar is fairly quiet, analysts believe that the UK outlook could keep improving. Speculation that stronger UK data could pressure the Bank of England (BoE) into being more hawkish could keep the Pound more appealing.

On the other hand though, if safe haven demand lingers but the US Dollar remains weak, the Japanese Yen is likely to strengthen as well.

Investors will be closely watching the April policy decision from the Federal Reserve next week. According to Masafumi Yamamoto, Chief Currency Strategist at Mizuho Securities, a dovish Fed has the potential to influence the Yen’s movement:

‘Powell has to reiterate the continuation of easy monetary policy just like Lagarde,

As a result, the Dollar is likely to fall against the Yen, but the larger trend for the Dollar is still mixed. The Dollar can still rise against commodity currencies if commodity prices start falling again.’

An expected policy decision from the Bank of Japan (BoJ), as well as Japanese retail sales and unemployment data, could also influence the Pound to Japanese Yen (GBP/JPY) exchange rate next week.
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