British Pound to Japanese Yen Exchange Rate Slips as Irish Border Brexit Issue Persists

The Japanese Yen has seen mixed demand in recent weeks as risk-sentiment rises and safe haven currencies weaken. Despite this though, the British Pound to Japanese Yen (GBP/JPY) exchange rate has been weakening due to Brexit jitters.

While GBP/JPY recovered from last week’s low of 145.89, the pair still slipped from 147.55 to 147.04 throughout the week. On Monday, GBP/JPY slumped once again due to Brexit jitters and trended near the level of 146.23 at the time of writing.

Demand for the Pound was limited on Monday morning, despite weekend news that the UK government believed that a UK-EU Brexit deal was 95% completed.

Despite perceived progress in the Brexit process, the biggest issues causing negotiation deadlocks remained – namely the issue of Ireland’s border.

The UK government wishes for Northern Ireland to have a soft border with the UK and Ireland (which is in the EU), but also wants the UK to have a hard border with the EU.

It has been one of the most contentious issues of Brexit negotiations and many investors are still anxious that talks could fall through if no deal on Ireland’s border is agreed.

Investors became even more anxious about Ireland’s border issue on Monday afternoon, with Northern Ireland’s DUP Party announced it would block the EU’s Northern Ireland backstop plan – the only plan for the border that the EU has shown willingness to work with so far.

The Pound tumbled in response to the news as concerns worsened that negotiations could collapse instead of reaching an agreement on the Irish border.

The Japanese Yen was able to benefit from the Pound’s weakness and push GBP/JPY lower, despite lower market demand for safe haven currencies like the Yen in recent sessions.

As fears lighten about the potential impact of a US-China trade war, and commodity prices rise, investors have been less eager to hold into safe havens like the Yen and this has limited the Yen’s strength.

On Monday, risk-sentiment rose further following news that China’s government was planning new measures to stimulate and support China’s economy.

This was not enough to weaken the Japanese Yen considerably though, as the currency benefitted from the Pound’s broad Brexit-inspired weakness throughout the day.

The Japanese Yen was also supported slightly by August’s Japanese all industry activity index, which published on Monday and beat forecasts by printing at 0.5%.

The Pound to Japanese Yen exchange rate could continue to weaken in the coming days if Brexit fears continue to hit UK headlines, especially if upcoming UK data disappoints or Japanese data impresses.

CBI’s latest UK business optimism and industrial trends stats will be published tomorrow. Japan’s October Nikkei manufacturing PMI will come in on Wednesday, with October’s Tokyo CPI figures due to come in on Friday.

Sterling is simply unlikely to strengthen notably until a Brexit deal is actually reached, with the deadlock on Ireland’s border being among the primary causes of Pound weakness in recent months.

As a result, the Pound to Japanese Yen is only likely to climb this week if the Japanese Yen is sold due to stronger risk-sentiment or disappointing Japanese data.