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British Pound retreats sharply from January 2008 highs amid broad-based JPY rally

  • GBP/JPY comes under intense selling pressure and moves away from a multi-year top.
  • Comments from Japan’s Finance Minister lift the JPY amid looming intervention risks.
  • Easing UK political uncertainty and the wide UK-Japan rate gap could help limit losses.

The GBP/JPY cross attracted heavy selling on Friday, snapping a two-day winning streak to the highest level since January 2008, around the 218.00 mark set the previous day. The intraday descent drags spot prices below the 217.00 mark during the first half of the European session amid a broadly firmer Japanese Yen (JPY).

The Japanese Yen (JPY) rallies across the board after Japan’s Finance Minister Satsuki Katayama said that the government plans to encourage pension funds to increase their holdings of domestic financial assets. She added that the government anticipates gradual increases in interest rates as it pursues a proactive fiscal policy stance, and that she wants to speed up discussions on expanding JGB products aimed specifically at households. A larger and steadier base of long-horizon domestic buyers could help absorb increased bond issuance tied to Japan's fiscal expansion without requiring as much reliance on foreign investors.

This comes on top of looming intervention risks and prompts an aggressive JPY short-covering move, which, in turn, is seen as a key factor exerting downward pressure on the GBP/JPY cross. The British Pound (GBP), on the other hand, draws support from fading UK political uncertainty after a vast majority of Labour MPs formally nominated Andy Burnham to be the next party leader. This clears the path for him to replace Keir Starmer and become the new UK prime minister on July 20. This, along with bets for further Bank of England (BoE) interest rate hikes, favors the GBP bulls and should support the GBP/JPY cross.

In fact, markets are now fully pricing in a 25 basis points (bps) BoE rate hike by year-end, most likely in December. This would leave a significant gap in borrowing costs between the UK and Japan, which might continue to fuel the so-called JPY carry trade and contribute to limiting losses for the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have topped out in the near-term and positioning for any meaningful corrective decline.

Japanese Yen Price Today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.01%-0.03%-0.44%-0.00%-0.03%-0.20%-0.08%
EUR0.01%-0.01%-0.41%0.02%-0.03%-0.19%-0.07%
GBP0.03%0.01%-0.39%0.03%-0.02%-0.17%-0.05%
JPY0.44%0.41%0.39%0.43%0.40%0.21%0.34%
CAD0.00%-0.02%-0.03%-0.43%-0.04%-0.21%-0.08%
AUD0.03%0.03%0.02%-0.40%0.04%-0.17%-0.07%
NZD0.20%0.19%0.17%-0.21%0.21%0.17%0.12%
CHF0.08%0.07%0.05%-0.34%0.08%0.07%-0.12%

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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