GBP/JPY whipsaws around three-week low under 163.00 on BOJ’s inaction, BOE eyed

GBP/JPY dribbles around 162.40 after marking a volatile move to refresh daily limits on the Bank of Japan’s (BOJ) monetary policy announcements early Thursday. In doing so, the cross-currency pair remains around the lowest levels since September 05 while waiting for the Bank of England (BOE).

BOJ kept the short-term interest rate target at -0.1% while directing 10-year Japanese Government Bond (JGB) yields toward zero, as expected, during September’s monetary policy. The Japanese central bank also concluded its pandemic relief stimulus: "BOJ decided to phase out pandemic funding program, shift to fund provision step that meets a wide range of financing needs.”

Also read: BOJ: Japan's core consumer inflation likely to accelerate toward year-end

On the other hand, firmer yields also propel the yen and keep the GBP/JPY mildly bid on a daily basis. That said, the US 10-year Treasury yields bounce back towards the 11-year high marked the previous day, up three basis points (bps) near 3.55% whereas the 2-year counterpart rises 0.75% intraday to 4.085% at the latest, near the highest levels in 15 years.

The firmer bond coupons could be linked to the market’s rush for risk-safety amid the central bank’s aggression and geopolitical fears emanating from Russia.

On Wednesday, the US Federal Reserve (Fed) announced 75 basis points (bps) of a rate hike, the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labor market. Fed Chairman Jerome Powell also signaled that the way to tame inflation isn’t painless ahead.

Elsewhere, Russian President Vladimir Putin’s announcement to mobilize partial troops also reignited the Ukraine-linked geopolitical fears and the supply-crunch woes. In a reaction, Ukrainian President Volodymyr Zelensky said Ukrainian neutrality is out of the question and he rules out that a settlement can happen on a different basis than the Ukrainian peace formula. On the same line were the comments from the Group of Seven (G7) leaders who confirmed cooperation on support for Ukraine.

GBP/JPY traders will pay attention to the BOE moves as the “Old Lady”, as it is popularly known, is expected to announce 50 basis points (bps) rate hikes amid increasing inflation fears. However, the BOE’s peers from the US, Sweden and Brazil have recently announced a 0.75% rate increase and the central bank is under pressure to take a big move, even if the latest UK statistics don’t support the claim, which in turn hints at a positive surprise from the British central bank and a corrective bounce of the pair.

Technical analysis

A clear downside break of the four-month-old ascending trend line, around 161.70 by the press time, becomes necessary for the GBP/JPY pair to aim for the 200-DMA support near 160.30.