Pound to Japanese Yen (GBP/JPY) Exchange Rate Plummets on News of ‘Mutant’ UK Covid-19 Strain

December 21, 2020 - Written by John Cameron

STORY LINK Pound to Japanese Yen (GBP/JPY) Exchange Rate Plummets on News of ‘Mutant’ UK Covid-19 Strain

GBP/JPY Exchange Rate Sinks as No-Deal Brexit Fears Haunt UK Markets

The Pound to Japanese Yen (GBP/JPY) exchange rate plummeted by -1.4% today, with the pairing currently fluctuating around ¥137.690.

The Pound (GBP) fell sharply today following this weekend’s announcement that London and parts of the south-east of England would enter Tier 4 to stem the spread of a ‘mutant’ strain of Covid-19.

Today also saw the announcement that France would ban UK transport, including hauliers.

As a result, GBP investors have become more pessimistic about the outlook for the British economy.

Added to this, Downing Street has missed the EU Parliament’s deadline of Sunday to secure a UK-EU trade agreement.

However, talks between the two sides are ongoing amid rising concern over the UK’s new strain of Covid-19.

Vincent Enouf of the Institut Pasteur commented:

‘We’re told is it spreading faster in parts of the UK. But is that the result of a super-spreader transmitting the virus, or of the new mutation? All of this still has to be verified.’

Japanese Yen (JPY) Rises as Safe-Haven Demand Rises on Covid-19 Uncertainty

The Japanese Yen (JPY) benefited from its safe-haven status today as global markets become more cautious as several countries have intensified Covid-19 lockdown restrictions.

As a result, investors are seeking out safe-haven assets like the Japanese Yen as the global economic outlook becomes more uncertain.

Naoki Kamiyama, an analyst at Investment Week, explains:

‘A factor behind the Japanese market's gains, and those of the global markets as a whole, has been expectations of the development and rollout of Covid-19 vaccines. Hopes for government stimulus also gave the market an extra boost.

‘In addition, expectations that non-contact business segments (such as teleconferencing and medical treatment providers) would enjoy growth in a "new normal" brought about by the pandemic have also supported the market.’

However, Japan’s economy has not been spared by 2020 with annualised GDP in the second quarter plummeting by nearly -30%.

With Japan experiencing a third wave of Covid-19, however, the outlook for Japan’s relatively robust economy is looking increasingly dark.

Masahiko Takeda, an analyst at East Asia Forum, commented:

‘Debate is once again raging about the government’s balancing act between pandemic control and preservation of economic activity.’

GBP/JPY Forecast: No-Deal Brexit Fears Could Plunge Sterling Deeper

Pound (GBP) investors will be monitoring tomorrow’s release of the UK’s GDP data for the third quarter.

If this is revised downward, we could see Sterling continue to fall against the Japanese Yen as the outlook for the economy darkens.

Brexit news will also continue to drive Sterling this week.

As a result, we could see the GBP/JPY exchange rate plummet further if it looks increasingly likely that the UK could leave the EU without a trade agreement.

Meanwhile, the Japanese Yen (JPY) is likely to continue to benefit from safe-haven demand as the global economic situation looks increasingly uncertain.

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