Pound Sterling to Japanese Yen (GBP/JPY) Exchange Rate Forecast to Dive despite Slowdown in Japanese Industrial Production

The Pound softened on Monday in response to a combination of mostly negative domestic data results and trader profit-buying. The recent Sterling surge, thanks to a succession of positive ecostats and increased bets as to a sooner-than-expected Bank of England (BoE) benchmark interest rate hike, opened up a number of attractive selling opportunities. Also weighing on demand for the UK asset was mixed economic data results which erred towards negativity. Although Net Lending Securities on Dwellings bettered the median market forecast in May, Net Consumer Credit and Mortgage Approvals failed to meet with the respective market consensuses. However, although Mortgage Approvals failed to meet with estimated growth in May, many analysts are not concerned because the May reading came at a time of political uncertainty before the conclusion to the British general election.

The Japanese Yen, meanwhile fluctuated considerably in the past week thanks to ever changing market sentiment which tracked the ebb and flow of Greek geopolitics. The Yen declined towards the end of the week as optimism that Greece and its creditors would find a compromise saw heightened demand for high-yielding assets. Monday has seen the Yen surge versus its peers after negotiations between Athens and Eurogroup representatives broke down, leading to Prime Minister Alexis Tsipras calling for a referendum on the proposed austerity measures. Uncertainty about what this will mean for Greece, and whether they will even be awarded bailout funds even if the Greeks cote yet to austerity, has caused widespread demand for safe-haven assets. Much better-than-expected Japanese Retail Sales also bolstered demand for the Yen. However, a significant slowdown in Industrial Production has caused many to speculate that the central bank will have to ease policy to counteract the stumbling factory output.

‘The plunge in industrial production in May points to a contraction in gross domestic product (GDP) this quarter,’ said Marcel Thieliant, a Japan economist at Capital Economics. ‘The Bank of Japan will have to step up the pace of easing before too long.’
Looking ahead, there will be several influential domestic data publication with the potential to provoke Pound sterling to Japanese Yen (GBP/JPY) movement. However, it is fair to say that market sentiment is likely to have a stronger impact upon the GBP/JPY pairing. For those invested in the Yen, Wednesday’s Tankan Large Manufacturers Index will be of significance to see whether it correlates with today’s manufacturing reading.

The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate dived by around -1.00% on Monday afternoon, trending in the region of 193.1600.