GBP/JPY gains ground as BoJ's credibility wanes

On the last day of July, the GBP gained ground against the JPY, trading at 182.759, with 0.81% gains day, mainly due to the Bank of Japan´s (BoJ) decision on Friday which made the JPY weaken on dovish bets on the BoJ.

Friday’s Bank of Japan (BoJ) decision saw an unexpected announcement of a slight tweak in their Yield Control Policy Curve (YCC) but still no signs of a monetary policy lift-off. Governor Ueda commented that the bank is not considering hiking rates as the local inflation figures are still well behind their forecast, and the YCC tweak was not a step into a policy normalisation. In that sense, monetary policy divergences are mainly responsible for weakening the JPY.

On the other hand, Investors anticipate that the Bank of England (BoE) will implement a 25 bps increase in its key interest rate to 5.25% on August 3, while in the last weeks, the stronger case was a 50 bps hike. In addition, market participants expect two more rate hikes by the end of the year, which supports the strengthening of GBP over the JPY. Furthermore, investors will closely look at Governor’s Bailey speech and the Monetary Policy statement to look for additional clues regarding the bank’s subsequent decisions.

GBP/JPY Levels to watch

The daily candlestick chart shows that bulls are gaining ground with a Relative Strength Index (RSI) trading in positive territory and a slope pointing north, while the Moving Average Coverage Divergence (MACD) is printing  fading red bars indicating that the bears are losing the little strength they have left. On the overall outlook, the pair trades above the 20,100 and 200-day Simple Moving Average (SMA), emphasizing a positive trend for investors.

Resistance levels: 183.00, 183.500,184.00.
Support levels: 181.560 (20-day SMA), 181.00,180.00.

GBP/JPY Daily chart