GBP to JPY Exchange Rate Losses Limited as Market Risk-Sentiment Weakens Yen

February 6, 2020 – Written by Frank Davies

Despite the Pound’s broad weakness on revived hard Brexit fears this week, the British Pound to Japanese Yen (GBP/JPY) exchange rate has only seen limited losses this week so far. Investors have also been selling the safe haven Japanese Yen as coronavirus concerns lighten. This is making the Yen one of this week’s weaker currencies and making it easier for the pair to avoid losses.

Since opening this week at the level of 143.09, GBP/JPY has been trending lower thanks to the Pound’s broad losses at the beginning of the week. While GBP/JPY has largely recovered from Tuesday’s post-November low of 140.98, the pair has been unable to recover to the week’s opening levels.

At the time of writing, GBP/JPY is trending near the level of 142.44. GBP/JPY has recovered most of its losses but is still trending lower than the opening levels of the past two weeks, and unless coronavirus concerns lighten even further the pair may struggle to recover.

GBP Exchange Rates Struggle for Direction as Hard Brexit Fears Persist

At the beginning of the week, the UK and EU took tougher stances against one another ahead of what is expected to be a difficult 2020 of UK-EU Brexit negotiations.

It caused fears to return that 2020 could end with a hard Brexit outcome, with Britain maintaining minimal or no connection to the EU. This caused fresh market panic.

However, the Pound’s losses against the weak Japanese Yen were limited, and thanks to strong UK data the Pound has been able to recover most of Monday’s losses.

This week’s UK PMIs beat projections in every notable print. This boosted hopes that Britain’s economic performance will see an early 2020 rebound that will douse the possibility of a more dovish Bank of England (BoE)

Still, while the Pound did recover from this week’s lows, it has been unable to recover all of the week’s losses as Brexit uncertainties persist.

Yesterday, the EU indicated that it could rewrite financial regulations. This caused fresh market concerns about the status of the City of London as a financial centre if UK-EU negotiations go poorly.

According to analysts from ING:

‘While GBP benefited from the risk rally in the middle of week, its gains … have been limited as the overhang of upcoming UK-EU negotiations limits GBP upside potential,

We continue to expect the periods of GBP rebounds to be shallow and short-lived.’

JPY Exchange Rates Struggle as Investors Move Away from Safe Havens

Last week saw markets pour into safe haven currencies like the Japanese Yen, due to panic around a coronavirus outbreak in China.

However, as the coronavirus didn’t offer any fresh shocks this week, investors have been more hopeful that the situation will not significantly impact the global economy.

This has caused much of the coronavirus panic to be undone, and investors have been selling the safe haven Japanese Yen in favour of riskier assets again this week.

As the Japanese Yen was only supported by safe haven demand, it has essentially slumped against all major rivals this week. This is one of the biggest reasons that the Pound has been able to recover so much against it.

The Yen has been unable to find much support in domestic news either. Japanese data continues to disappoint, as Jibun Bank’s services and composite PMIs disappointed investors on Wednesday.

GBP/JPY Exchange Rate Forecast: Sentiments on Brexit and Risk Remain the Focus

The Pound has been unable to recover all of its gains, as market concerns about the future of UK-EU relations continue to keep considerable pressure on the Pound and UK economic outlooks.

However, if UK or EU officials ramp up optimism around talks, the Pound could be in for stronger support. Essentially, the Pound’s vulnerability and volatility in reaction to Brexit developments is unlikely to stop any time soon.

This means that Sterling’s appeal will remain limited, but unless safe haven demand rises again the Japanese Yen’s strength will also be limited.

The Japanese Yen could see another jump in demand if coronavirus concerns suddenly worsen again and lead to a fresh surge in safe haven demand.

However, if coronavirus concerns are further doused instead the Pound to Japanese Yen exchange rate could climb more easily and recover more of this week’s losses.

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TAGS: Pound Yen Forecasts