British Pound to Japanese Yen Exchange Rate Hits Fortnight Low as Japanese Exports Beat Forecasts

Mixed risk-sentiment and UK economic data have caused fluctuations in the British Pound to Japanese Yen (GBP/JPY) exchange rate in recent weeks, but as trade jitters worsen and Britain’s economic outlook becomes murkier there could be losses ahead.

Last week saw GBP/JPY fluctuating broadly. The pair opened the week at 146.80 and closed at 146.95, but throughout the week fluctuated between lows of 146.31 and highs of 146.94. When markets opened on Monday, GBP/JPY tumbled and hit its lowest level in over two weeks – 146.20.

Demand for the Pound has been weaker since last week, when underwhelming UK wage growth and inflation stats worsened market concerns about domestic price pressures.

If UK price pressures continue to weaken, it could indicate that Britain’s economy may not be able to sustain tighter monetary policy from the Bank of England (BoE) any time soon.

BoE bets have been a huge driver of Pound movement in recent weeks, and fading BoE rate hike bets as well as persistent Brexit uncertainties have limited Sterling appeal and prevented it from holding gains against major rivals like the Japanese Yen.

Towards the end of last week, Britain’s latest retail sales results beat forecasts which gave Sterling a brief boost. However, its strength was limited as analysts felt there was little reason to believe it would lead to a prolonged boost in UK retail activity.

Britain’s growth outlook weakened further for some Pound investors on Monday, when the British Chambers of Commerce (BCC) published a new UK growth forecast and predicted that UK growth would only reach 1.3% in 2018, rather than the previously forecast 1.4%.

However, perhaps the main cause of GBP/JPY losses on Monday was the boost in demand for the safe haven Japanese Yen.

At the end of last week, the US announced a new round of controversial trade tariffs on imports of Chinese goods – and China quickly retaliated with its own tariffs.

This dampened market eagerness to take risks and made safe haven currencies like the Japanese Yen a lot more appealing.

On top of this, the Japanese Yen saw some domestic support on Monday in the form of Japan’s May trade report. According to the report, Japanese exports saw an unexpected boost in May, jumping from 7.8% to 8.1% rather than the forecast 7.5%.

Analysts urged investors to not be distracted by Japan’s bigger-than-expected trade deficit and instead focus on the stronger export figures. According to Takeshi Minami, Chief Economist at Norinchukin Research Institute:

‘Exporters are more important and they are gaining traction steadily on the back of the global economy, even though they are not that strong. Strong imports reflect strong domestic demand. So, I don’t think a trade deficit is a bad thing.’

Will the Japanese Yen hold its gains though? Demand for the Japanese currency could easily wane again if US trade jitters lighten, or if Friday’s upcoming Japanese inflation report disappoints investors.

As Japan’s growth rate has disappointed recently, investors are becoming more concerned about Japan’s economic outlook. If Japanese inflation beats expectations though, the Yen is more likely to remain sturdy and hold recent gains.

Pound to Japanese Yen exchange rate traders will also be highly focused on Thursday’s upcoming Bank of England (BoE) policy decision however.

As UK data has been mixed in recent weeks, the Bank of England’s tone on the UK economic outlook will be key for the direction of Pound trade this week.

If the BoE takes a more optimistic tone than expected on Britain’s economy and inflation, BoE interest rate hike bets could rise again which would help the Pound to recover against the Yen towards the end of the week.