- GBP/JPY drops to a fresh multi-week low amid sustained JPY buying.
- Bolstering the safe-haven JPY are BOJ’s hawkish expectations coupled with a softer risk tone.
- A decisive break below the 188.00 level supports prospects for further depreciation.
The GBP/JPY pair attracted fresh sellers during the Asian session on Friday and slipped further below the 188.00 level, hitting a three-and-a-half-week low in the last hour.
This marks the third day of a negative move in the last four and is sponsored by some follow-through buying around the Japanese Yen (JPY), which remains supported by hawkish expectations from the Bank of Japan (BOJ). Indeed, BOJ Governor Kazuo Ueda reiterated earlier this week that the central bank will continue to raise interest rates if the economy and prices perform as expected.
Adding to this, BoJ Board member Hajime Takata said on Thursday that we should tighten monetary conditions one step further if we can confirm that companies will continue to increase capital spending, wages and prices. In addition, data released on Thursday showed that real wages in Japan unexpectedly rose for the second consecutive month in July, keeping the BOJ on track for another possible rate hike in 2024.
Meanwhile, a string of mixed employment data released in the United States (US) this week triggered concerns over the health of the economy. This, coupled with lingering geopolitical tensions, dampens investors’ appetite for riskier assets, which is seen as another factor underpinning the safe-haven JPY and putting additional downward pressure on the GBP/JPY cross amid a lack of buying around the British Pound (GBP).
With the latest decline, spot prices confirm an intraday breakout through the horizontal support at 189.00 and a subsequent drop below the 188.00 level favors the bears. Moreover, oscillators on the daily chart remain in the negative territory and are still far from being in the oversold zone. This suggests that the path of least resistance for the GBP/JPY pair is to the downside and supports the prospects of further losses.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets the country’s monetary policy. Its mandate is to issue banknotes and carry out monetary and foreign exchange control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has been pursuing ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflation environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing money to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further relaxed policy by first introducing negative interest rates and then directly controlling the yield on its 10-year government bonds.
The Bank of Japan’s massive stimulus has caused the Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-high inflation. The Bank of Japan’s policy of keeping rates low has led to a widening spread with other currencies, dragging down the value of the Yen.
The weak yen and the surge in global energy prices have caused Japanese inflation to rise, exceeding the Bank of Japan’s 2% target. However, the Bank of Japan believes that a sustainable and stable achievement of the 2% target is not yet in sight, so a sharp change in current monetary policy seems unlikely.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
