Pound Sterling to Japanese Yen (GBP/JPY) Exchange Rate off Twenty-Six Month Low as Yen Falters

As global markets begin to recover from the latest rout the Japanese Yen (JPY) has lost some of its bullishness, while the Pound Sterling (GBP) has recovered somewhat on the back of improved construction data.

Japanese Yen Strengthened by Safe-Haven Demand as Market Rout Continued

Stock market volatility has seen investors flocking back into the Japanese Yen (JPY) this week, despite the Bank of Japan’s (BoJ) decision to cut interest rates into negative territory earlier in the month.

Amidst on-going global slowdown concerns the Yen has emerged once again as the safe-haven asset of choice for traders, helping to push the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate down to a fresh twenty-six month low of 160.4831.

Thursday’s surprise decision by the Riksbank to drop interest rates further from -0.35% to -0.50% pushed the Yen higher, in spite of increasing speculation that the BoJ could be prompted to follow suit in the coming months.

However, after the reopening of the Nikkei Index after the National Founding Day holiday saw a sharp 5% slump in share prices, dovish commentary from domestic policymakers has prompted the Yen to soften somewhat as the continued recovery of the Japanese economy appears to be coming into greater question.

Ahead of the weekend the Japanese Yen to Pound Sterling (JPY/GBP) exchange rate is trending narrowly at 0.0061.

Improved UK Construction Output Data Bolsters Pound Sterling

Confidence in Pound Sterling (GBP) was somewhat restored on Friday as the latest UK Construction Output figures were found to have improved, with productivity showing a strong gain after November’s sharp contractions.

Nevertheless downside risks are still continuing to mount for the Pound as next week’s European leaders summit approaches, with Prime Minister David Cameron hoping to achieve agreement on proposed reforms to the UK’s membership of the EU.

Should the proposal be approved the way will be set for a June ‘Brexit’ referendum, although this is unlikely to dispel the bearishness caused by uncertainty as to the outcome of the vote.

With the Bank of England (BoE) looking set to leave interest rates unchanged for some time to come, as some economists estimate an interest rate take-off as last as 2020, the outlook of the Pound seems set to remain muted.

GBP/JPY Exchange Rate Forecast to Climb as Japanese GDP Contracts

Monday is expected to see the GBP/JPY exchange rate retaking further ground, however, as the fourth quarter Japanese GDP is forecast to show a sharp slump in domestic economic growth.

As the current Japanese economic program of Abenomics has been coming under increasing pressure in recent months a weaker showing here could prompt a fresh wave of concern, likely to result in a renewed slump in the strength of the bullish Yen.

Speculation is increasingly suggesting that the BoJ may move to weaken the Yen further in the coming weeks, as the impact of the recent interest rate cut has been mostly neutralised by this week’s turbulent market movement.

At the time of writing, the GBP/JPY exchange rate was trending higher at 163.3300.