UPDATE 26/03: The Pound Sterling to Japanese Yen exchange rate saw out a volatile Monday session marginally lower with price action for the session confined to a narrow range.
Ebbing risk aversion saw the GBP gain on the Yen into Tuesday with the cross last seen up 0.19%, trading around ¥145.393. Following PM May's announcement to not put forward the EU withdrawal agreement for a third meaningful vote this week, MPs backed the so-called Letwin amendment meaning Wednesday will see UK lawmakers engage ina series of indicative votes in a bid to find a route out of the current Brexit impasse. Focus for Tuesday will likely be on the substance of the votes and the likelihood attributed to each alongside whther or not the UK government is likely to accept or reject the will of the House of Commons.
For the Japanese Yen, a risk-on environment is expected to limit support as investors put their capital to work in riskier assets.
UPDATE 25/03: The Pound Sterling, having started the week on a soft footing against the Japanese Yen, regained some pips as Monday's European session got underway with the Pound to Yen exchange rate last seen trading at ¥145.303, up a marginal 0.08% from open.
The Sterling found support from the recent decision from EU leaders to delay the UK's departure from the EU until mid-April in a bid to allow the PM a final opportunity to get her deal through parliament.
The week ahead could prove critical for Brexit as MPs are expected to take a third ballot on the EU withdrawal agreement. Meanwhile, a stream of weak economic statistics out of Europe, adding to concerns over the health of the global economy saw the Yen supported as investors sought the relative safety of the JPY.
President of FPG securities ion Tokyo, Koji Fukaya, wrote "Bad economic data should not come as a real surprise to the markets. But hopes for improvements in Sino-U.S. trade relationships had overshadowed economic woes, and now we are seeing some of the excessive expectations being curtailed,” adding "The yen is gaining broadly, albeit by default, under such conditions.”
Pound-to-Yen Volatile Amid Ricocheting Brexit Sentiment and Risk Appetite
The Pound has opened the week on a softer footing, with the Pound to Yen exchange rate trading 0.17 percent down on the day, valued at just ¥145.13714.
Despite a late-week rebound in demand for the Pound as hopes of a Brexit delay rose, GBP/JPY plummeted last week and was unable to recover far from its worst levels due to broader market demand for safe haven currencies like the Japanese one.
Brexit jitters and safe haven demand left GBP/JPY falling throughout the week. After opening the week at the level of 148.22, GBP/JPY was unable to return to the week’s opening levels and quickly shed over three Yen in value. On Thursday, GBP/JPY briefly touched on a low of 144.32 – which was the worst level for the pair since early-March.
Towards the end of the week GBP/JPY rebounded just slightly due to fresh Brexit delay hopes, but the safe haven Japanese Yen remained appealing and GBP/JPY only recovered to around the level of 145.00.
Pound to Japanese Yen (GBP/JPY) Exchange Rate Plummets as Safe Haven Yen Benefits from Brexit Fears
Throughout the past week, a combination of global factors and weaknesses in major rivals left the safe haven Japanese Yen one of the most appealing major currencies.
Safe haven currencies typically benefit in times of global uncertainty, as investors buy assets which are perceived as safe and reliable.
The Japanese Yen was the market’s safe haven currency of choice last week, as its safe haven rival the US Dollar (USD) was hit by a dovish tone from the Federal Reserve. The Euro (EUR), another major Yen rival, tumbled in reaction to weak Eurozone manufacturing data.
Investors found the Japanese Yen particularly appealing versus the Pound though, as last week saw a resurgence in concerns that a no-deal Brexit was still possible.
When the UK government asked to delay the formal Brexit process, the EU was initially hesitant to allow any Brexit delay at all unless UK Parliament could reach an agreement on how to proceed with Brexit.
This worsened concerns about a no-deal Brexit becoming reality next Friday, until the EU confirmed it would delay Brexit until at least the 12th of April to allow the UK time to find an alternative solution.
Still, while this late-week development supported the Pound, the chaos surrounding Brexit still left investors hesitant to take risks and the safe haven Japanese Yen benefitted until the end of the week.
Pound (GBP) Exchange Rate Forecast: Focus Remains on Brexit Chaos and Lingering No-Deal Fears
The Pound is in for another week of high volatility and uncertainty, with UK Parliament looking to decide both the length of the (first?) Brexit delay, as well as potentially what’s next for the Brexit process.
The UK government is looking to hold a third meaningful Parliament vote on its Brexit plan, but analysts doubt the government will have the support needed to pass its plan through.
In the event the deal does pass, Sterling would surge as a soft Brexit would be confirmed and Brexit uncertainty would be doused.
However, the deal being blocked a third time is more likely. This would mean Brexit being delayed two weeks, to the 12th of April, and Parliament needing to decide how to proceed.
Depending on Parliament’s next steps on Brexit, the Pound is likely to be strongly influenced.
The Pound may also be influenced by Friday’s UK data, which includes UK growth and business investment stats, but only if there are no fresh Brexit developments to drive currency movement at the end of the week.
Japanese Yen Exchange Rate Forecast: Safe Haven Demand and Friday Data to Drive JPY
The Japanese Yen’s status as a safe haven currency will likely continue to influence Yen movement over the next week, as the US and China are set to begin another round of trade negotiations.
If the US and China get closer to reaching some kind of agreement on trade, investors will become more willing to take risks and safe haven currencies like the Yen will weaken. This would make it easier for the Pound to Yen exchange rate to recover in the coming week.
On the other hand though, if negotiations go poorly or Brexit uncertainties remain rife, investors may continue to find the safe haven allure of the Japanese Yen appealing.
Risk-sentiment aside, the Japanese Yen could also be influenced by some major Japanese data due towards the end of the week.
Thursday will see the publication of Japan’s latest foreign bond investment data, followed by a slew of influential stats on Friday including Japanese inflation, unemployment, retail sales, industrial production, and construction orders.
Overall, next week looks to be another busy one for the Pound to Japanese Yen exchange rate.