GBP/JPY rebounds over 100 pips from one-week low, climbs back closer to 191.00 mark

GBP/JPY stages a solid intraday recovery from over a one-week trough touched earlier this Monday.
A combination of factors weighs on the JPY and lends support to the cross amid a modest GBP uptick.
The divergent BoJ-BoE policy expectations warrant caution before placing aggressive bullish bets.

Haresh Menghani FXStreet

The GBP/JPY cross attracts some dip-buyers in the vicinity of mid-189.00s, or a one-week low and for now, seems to have stalled its retracement slide from a nearly two-month peak touched on Friday. The move up lifts spot prices to the 191.00 neighborhood, back closer to the daily peak during the early European session, though the fundamental backdrop warrants some caution for bullish traders.

The Japanese Yen (JPY) weakens in reaction to comments from Japan's incoming Prime Minister (PM) Shigeru Ishiba, saying that the Bank of Japan's (BoJ) monetary policy must remain accommodative to underpin a fragile economic recovery. This, along with news that the new PM is planning a general election for October 27 and mixed Japanese economic data, continues to undermine the JPY and lends support to the GBP/JPY cross.

Meanwhile, the British Pound (GBP) draws support from a subdued US Dollar (USD) demand and expectations that the Bank of England's (BoE) rate-cutting cycle is likely to be slower than in the US. This turns out to be another factor acting as a tailwind for the GBP/JPY cross. That said, the growing market conviction that the BoJ will hike interest rates again by the end of this year should help limit any meaningful JPY losses.

Apart from this, the risk of a further escalation of geopolitical tensions in the Middle East should benefit the safe-haven JPY and contribute to capping the GBP/JPY cross. Israel expanded its confrontation with Iran's allies and launched aggressive aerial assaults on Sunday against Houthis in Yemen and Hezbollah in Lebanon. This, in turn, fuels concerns that the fighting could spin out of control and trigger an all-out war in the region.

From a technical perspective, the 50-day Simple Moving Average (SMA) crossed below the very important 200-day SMA earlier this month, forming a bearish 'Death Cross' on the daily chart. This further makes it prudent to wait for strong follow-through buying before positioning for the resumption of the recent goodish recovery from the monthly low in the absence of any relevant market-moving economic releases on Monday.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Haresh Menghani

FXStreet

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

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD struggles for direction amid USD gains

EUR/USD is trimming part of its earlier gains, coming under some mild downside pressure near 1.1730 as the US Dollar edges higher. Markets are still digesting the Fed’s latest rate decision, while also looking ahead to more commentary from Fed officials in the sessions ahead.

GBP/USD drops to daily lows near 1.3360

Disappointing UK data weighed on the Sterling towards the end of the week, triggering a pullback in GBP/USD to fresh daily lows near 1.3360. Looking ahead, the next key event across the Channel is the BoE meeting on December 18.

Gold losses momentum, challenges $4,300

Gold now gives away some gains and disputes the key $4,300 zone per troy ounce following earlier multi-week highs. The move is being driven by expectations that the Fed will deliver further rate cuts next year, with the yellow metal climbing despite a firmer Greenback and rising US Treasury yields across the board.

Litecoin Price Forecast: LTC struggles to extend gains, bullish bets at risk

Litecoin (LTC) price steadies above $80 at press time on Friday, following a reversal from the $87 resistance level on Wednesday. Derivatives data suggests a bullish positional buildup while the LTC futures Open Interest declines, flashing a long squeeze risk.

Big week ends with big doubts

The S&P 500 continued to push higher yesterday as the US 2-year yield wavered around the 3.50% mark following a Federal Reserve (Fed) rate cut earlier this week that was ultimately perceived as not that hawkish after all. The cut is especially boosting the non-tech pockets of the market.

Aave Price Forecast: AAVE primed for breakout as bullish signals strengthen

Aave (AAVE) price is trading above $204 at the time of writing on Friday and approaching the upper boundary of its descending parallel channel; a breakout from this structure would favor the bulls.