Political news has influenced the British Pound to Japanese Yen exchange rate in recent sessions. While the Japanese Yen has benefitted from market demand for ‘safe haven’ currencies, its strength has been limited due to news that Japan would be holding a snap election on the 22nd of October.
Despite persistent demand for ‘safe haven’ currencies, the GBP/JPY exchange rate briefly touched on a high of 152.85 – its best level in over a year. The pair ultimately edged up from 150.58 to 151.14 last week and fluctuated on Monday.
Demand for the Pound improved on Monday as markets cooled following disappointment in UK Prime Minister Theresa May’s speech last Friday.
May had proposed a Brexit transitionary period but indicated that the UK government would still rather end the Brexit process with no UK-EU deal than a bad deal.
This initially concerned investors and revived concerns of a ‘hard Brexit’, which weakened the Pound and limited its gains against the Yen last week.
However, analysts noted on Monday that markets still appeared overall happy with the idea of a transitional period.
Investors saw the Pound as more appealing again, partially due to weakness in major currency rivals.
A big reversal of hedge fund bets that the Pound will weaken has also made the currency more appealing too.
Bets against the Pound saw their biggest drop on record during the week ending Tuesday the 19th, largely in response to new expectations that the Bank of England (BoE) could hike UK interest rates within the foreseeable future.
Lastly, hopes that Prime Minister May’s speech could have helped to progress UK-EU negotiations have bolstered Pound demand, as the fourth round of Brexit negotiations begins this week.
The Japanese Yen has seen mixed movement as well.
As a traditionally ‘safe haven’ currency that strengthens in times of market uncertainty, it has benefitted from political uncertainty following the weekend’s German and New Zealand election results.
However, political uncertainty has risen in Japan too, as Japanese Prime Minister Shinzo Abe has called a snap election to be held on the 22nd of October.
His decision comes due to rising North Korea tensions and a weakened opposition.
It also comes as Tokyo Governor Yuriko Koike broke off from Abe’s ruling Liberal Democratic Party (LDP) to form a new party, which Koike has named the Party of Hope.
Abe believes that his hard-line stance on North Korea, as well as the fractured opposition, will help his party to easily achieve re-election in October’s election.
As well as announcing a snap election, Abe also announced that he was looking to implement a 2 trillion yen package, focused on expanding education and social spending.
If the LDP succeeds in October’s election, Abe’s proposal is likely to be made before the end of the year.
While this fresh uncertainty has caused some Yen jitters, the currency has still benefitted from ‘safe haven’ demand, as well as comments from Bank of Japan (BoJ) Governor Haruhiko Kuroda that there were limits on how deep negative rates could go.
Depending on how much political uncertainty remains in the coming sessions, the Pound to Japanese Yen exchange rate’s advances could remain limited.
If North Korea geopolitical jitters remain and uncertainty persists about German and New Zealand election results, the Japanese Yen could see stronger demand in the coming days.
However, if markets cool quickly and begin to return to riskier investments, GBP/JPY is likely to advance again instead.
The Yen could also be influenced by Tuesday’s Bank of Japan (BoJ) meeting minutes report.
As for the Pound, it could continue its gradual recovery in the coming days if UK mortgage approval and housing prices data impresses.
Thursday’s speech from Bank of England (BoE) Governor Mark Carney could be highly influential too.
If Carney continues to hint that the BoE could hike rates within the foreseeable future, this will help keep the Pound relatively appealing.