British Pound refreshes monthly high; looks to extend rally above 217.00 vs weak Yen
- GBP/JPY reverses an intraday dip and climbs to a fresh monthly peak on Monday amid a weaker JPY.
- The wide interest rate gap between Japan and other major economies keeps the JPY carry trade active.
- Japan’s fiscal woes and economic risks stemming from the Middle East conflict undermine the JPY.
The GBP/JPY cross attracts some dip-buyers near the 216.20 area and touches a fresh monthly high during the early part of the European session on Monday. Spot prices currently trade just above the 217.00 mark and seem poised to appreciate further amid a broadly weaker Japanese Yen (JPY).
Despite expectations of faster interest rate hikes by the Bank of Japan (BoJ), borrowing costs in Japan remain significantly lower than in other major economies, including the UK. The resultant interest rate gap keeps the so-called carry trade active, which, along with concerns about Japan's worsening fiscal conditions, turns out to be another factor undermining the JPY.
Analysts at Danske Bank observe that “the pressure for further tightening from the Bank of Japan is mounting to support the yen,” reflecting growing concern over the currency’s persistent weakness. However, they caution that “with domestic price pressures still modest, the decision is not straight forward,” underscoring the policy dilemma facing the BoJ as it weighs currency support against a still-muted inflation backdrop.
Meanwhile, the market reaction to a rare joint currency intervention by the US and Japan proved to be short-lived as the market focus remains on broader central bank policy paths. Furthermore, worries that Japan's economy remains under significant strain due to the protracted Middle East conflict and resultant disruptions in the Strait of Hormuz favor JPY bears.
The British Pound (GBP), on the other hand, is weighed down by a modest US Dollar (USD) uptick and caps the GBP/JPY cross. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the GBP/JPY cross remains to the upside. Hence, any corrective pullback is more likely to be bought into and remain limited.
Japanese Yen Price This Month
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this month. Japanese Yen was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.18% | -1.22% | -0.18% | -1.25% | -1.88% | -1.47% | -0.36% | |
| EUR | 1.18% | -0.06% | 1.00% | -0.04% | -0.70% | -0.28% | 0.83% | |
| GBP | 1.22% | 0.06% | 1.11% | 0.02% | -0.67% | -0.23% | 0.90% | |
| JPY | 0.18% | -1.00% | -1.11% | -1.03% | -1.84% | -1.48% | -0.24% | |
| CAD | 1.25% | 0.04% | -0.02% | 1.03% | -0.69% | -0.69% | 0.97% | |
| AUD | 1.88% | 0.70% | 0.67% | 1.84% | 0.69% | 0.45% | 1.58% | |
| NZD | 1.47% | 0.28% | 0.23% | 1.48% | 0.69% | -0.45% | 1.13% | |
| CHF | 0.36% | -0.83% | -0.90% | 0.24% | -0.97% | -1.58% | -1.13% |
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
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
