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British Pound drops to three-week low as hawkish BoJ and suspected intervention boost Yen

  • GBP/JPY attracts heavy selling for the second straight day amid a broad-based JPY rally.
  • A suspected rate check and intervention fears boost the JPY amid a hawkish BoJ repricing.
  • Japan’s fiscal woes might cap the JPY and support spot prices amid modest GBP strength.

The GBP/JPY cross remains under intense selling pressure for the second straight day and drops to a three-and-a-half-week low, around the 212.75-212.70 region during the Asian session on Thursday. A broadly firmer Japanese Yen (JPY) is seen exerting pressure on spot prices, with bears looking to extend the fall further below the technically significant 200-day Simple Moving Average (SMA).

Traders remain on high alert amid speculations that authorities had conducted a rate check, which signals the possibility of an intervention to support the Japanese currency. Moreover, a more hawkish repricing of Bank of Japan (BoJ) rate hike expectations turns out to be another factor behind the JPY's relative outperformance and contributes to the heavily offered tone surrounding the GBP/JPY cross.

Traders are now pricing in a high probability of a 25 basis point (bps) rate increase at the next BoJ policy meeting on September 17–18 and a potential follow-up move in December. The bets were lifted by BoJ board member Hajime Takata's comments on Wednesday, saying that the central bank should adopt a more nimble approach to rate hikes rather than sticking to a predictable semiannual pace.

Yen focus sharpens as BoJ hawks flag risk of jumbo hike

Brown Brothers Harriman highlights a notably hawkish turn at the BoJ, with “staunch hawk Takata Hajime” having “left the door open for a 50bps or 75bps hike on September 18 and back-to-back rate hikes.” In parallel, BBH notes that Governor Kazuo Ueda “reiterated the need ‘to pay greater attention than before to upside risks’ to inflation,” underscoring a growing concern over persistent price pressures. Against this backdrop, the bank argues that “a jumbo BoJ hike at the next meeting is a real possibility, as inflation expectations account for most of the rise in 10-year JGB yields,” suggesting that policy makers may be prepared to respond more forcefully than markets currently anticipate.

However, borrowing costs in Japan remain significantly lower than in other major economies, including the UK. This should keep the so-called JPY carry trade active. Apart from this, concerns about Japan's worsening fiscal condition might hold back JPY bulls from placing aggressive bets. Furthermore, a weak US Dollar (USD) benefits the British Pound (GBP), which should limit losses for the GBP/JPY cross.

Japanese Yen Price This week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the New Zealand Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.14%0.29%-1.44%-0.59%-0.16%1.05%0.45%
EUR0.14%0.43%-1.28%-0.46%-0.03%1.14%0.60%
GBP-0.29%-0.43%-1.81%-0.87%-0.46%0.70%0.08%
JPY1.44%1.28%1.81%0.75%1.26%2.38%1.78%
CAD0.59%0.46%0.87%-0.75%0.43%1.62%0.95%
AUD0.16%0.03%0.46%-1.26%-0.43%1.16%0.54%
NZD-1.05%-1.14%-0.70%-2.38%-1.62%-1.16%-0.61%
CHF-0.45%-0.60%-0.08%-1.78%-0.95%-0.54%0.61%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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