GBP/JPY sticks to gains around 191.00, bulls seem non committed amid Middle East tensions

GBP/JPY regains positive traction on Wednesday, though it lacks follow-through buying.
The BoJ rate hike uncertainty undermines the JPY and lends some support to the cross.
Geopolitical risk helps limit deeper JPY losses and keep a lid on further gains for the pair.

The GBP/JPY cross attracts some dip-buying during the Asian session on Wednesday and reverses a part of the previous day's losses. Spot prices, however, remain below the technically significant 200-day Simple Moving Average (SMA) and currently trade around the 191.00 mark, up less than 0.15% for the day.

The Japanese Yen (JPY) continues to be undermined by the uncertainty over further interest rate hikes by the Bank of Japan (BoJ), which, in turn, is seen as a key factor lending some support to the GBP/JPY cross. In fact, Japan's new Prime Minister Shigeru Ishiba said earlier this week that the BoJ's monetary policy must remain accommodative to underpin a fragile economic recovery. Moreover, Ishiba seeks to secure a national mandate with an October 27 snap election, fueling political uncertainty and exerting additional pressure on the JPY.

That said, fears of a full-out war in the Middle East escalated further after Iran launched over 200 ballistic missiles at Israel on Tuesday. This, in turn, tempers investors' appetite for riskier assets, which is evident from a generally weaker tone across the global equity markets and should help limit deeper losses for the safe-haven JPY. Furthermore, markets are pricing in another BoJ rate hike by the end of this year. This marks a big divergence in comparison to bets for more rate cuts by the Bank of England (BoE) and should cap the GBP/JPY cross.

In the absence of any relevant market-moving economic releases on Wednesday, the aforementioned fundamental backdrop warrants caution before placing fresh bullish bets around the currency pair. Even from a technical perspective, the 50-day SMA crossed below the 200-day SMA last month, forming a 'Death Cross' on the daily chart. Furthermore, the GBP/JPY cross has repeatedly failed to find acceptance above the 200-day SMA. Hence, strong follow-through buying is needed to support prospects for a further appreciating move.

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.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.