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Will the BoJ save the Yen and sink GBP/JPY?

Weak UK retail sales and GDP data has put pressure on the British pound.
Rumors suggest the Bank of Japan (BoJ) may hike rates next week, which could impact the Yen and GBP/JPY.
On shorter timeframes (daily and hourly), there's potential for a bounce and retest of broken trendlines, with resistance levels around 191.50 and 193.00.

Zain Vawda MarketPulse

The British pound remains under pressure following a surprisingly weak retail sales report this morning. This follows up from a disappointing GDP report for November which fell short of market expectations.

UK retail sales unexpectedly dropped by 0.3% in December 2024, after a small 0.1% rise in November that was revised down. This was worse than the forecasted 0.4% increase. Over the whole of 2024, retail sales grew by 0.7%, recovering from a 2.9% drop in 2023 and a 4.1% fall in 2022.

The data weighed on the pound this morning with GBP/JPY falling some 60-70 pips post data release. However the pair has since recovered the majority of the drop as buying pressure returned.

BoJ to hike rates next week?

News filtered through via Nikkei this morning that the majority of BoJ board members are set to approve a rate hike next week. Now rhetoric from the BoJ has been notoriously unreliable for the longest time, with the Central Bank using rhetoric and chatter to aid the Yen at times. Could this be another false dawn?

Looking at recent data and comments from BoJ policymakers, it does appear that this might have some substance. Markets are pricing in around an 80% probability of a 25 bps hike next week. As for how this impacts the Yen and GBP/JPY in particular is going to be intriguing.

BoJ rate probabilities

Source: LSEG (click to enlarge)

The way GBP/JPY has reacted this morning leaves me to believe that we could be in for a bounce higher ahead of the BoJ meeting next week. The downside is still favored but a short-term pullback may present potential shorts with a better risk to reward opportunity.

Technical analysis – GBP/JPY

From a technical standpoint, GBP/JPY on a weekly timeframe failed to print a higher high in December which preceded the selloff we have seen since.

GBP/JPY is threatening a break of the ascending trendline on a weekly timeframe with a close below leaving the door open for a deeper correction toward the 100-day MA at 186.239 and potentially the 185.00 handle.

GBP/USD weekly chart, January 17, 2025

Source: TradingView.com

Dropping down to a daily timeframe and the trendline from the weekly chart has been broken with a daily candle close below yesterday.

There is a possibility of a bounce and retest of the trendline before bearish continuation. Given the rumors about a BoJ rate hike next week, a pullback in the early part of the week toward the 191.50 or 193.00 handle before sellers' return could materialize.

The RSI period 14 is hovering just above oversold territory though and thus a continuation of the selloff for current price levels cannot be ruled out either.

GBP/JPY daily chart, January 17, 2025

Source: TradingView.com

Dropping down further to a one-hour timeframe and a one-hour candle close above 190.150 could lead to a rally and retest of the trendline.

On the H1 timeframe the 100-day MA also rests near the trendline at 191.318 and may prove a hurdle too strong to crack. The positive here is that the RSI on the H1 timeframe has broken above the neutral 50 handle, suggesting a shift in momentum from bearish to bullish.

GBP/JPY one-hour chart, January 17, 2025

Source: TradingView.com

Support

189.349
187.628
185.000

Resistance

190.148
191.500
193.000

Author

Zain Vawda

MarketPulse

Zain is a seasoned financial markets analyst and educator with expertise in retail forex, economics, and market analysis.

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