The pound to Japanese yen (GBP/JPY) exchange rate continued soaring on Friday after the latest Bank of Japan (BoJ) interest rate decision and Tokyo’s inflation data. The pair soared to a multi-decade high of 196.14, much higher than last year’s low of 155.27.
Bank of England’s decision aheadThe GBP/JPY pair continued its strong bull run after the BoJ completed its interest rate meeting. As was widely expected, the bank decided to leave interest rates unchanged at 0%.
The committee also noted that it was observing the performance of the Japanese yen, which has collapsed against most currencies. It dropped to 156.77 against the US dollar and to 168 against the euro.
Most analysts anticipate that the central bank will opt to use its vast foreign reserves to intervene if the weakness persists. A model for this intervention is what the bank did in 2022 when it implemented a yen buyback program, spending over $20 billion.
However, the reality is that these interventions had a muted impact on the Japanese yen, which continued tumbling during the year. The other likely intervention approach will be more rate hikes. In a statement, Governor Ueda said:
“Currency rates is not a target of monetary policy to directly control. But currency volatility could be an important factor in impacting the economy and prices. If the impact on underlying inflation becomes too big to ignore, it may be a reason to adjust monetary policy.”
A report released on Friday showed that Tokyo’s headline Consumer Price Index (CPI) dropped from 2.6% in March to 1.8% in April. Core CPI dropped from 2.4% to 1.4%.
The next important GBP/JPY news will be next month’s Bank of England (BoE) decision in which the committee will guide on future rate cuts.
Economists expect that the BoE will leave interest rates unchanged at 5.25% and hint that a rate cut will come in the next meeting. Most analysts expect about three rate cuts this year since inflation is in a downward trend.
The BoE believes that the country’s inflation will drop to its 2% target either in April or in May as energy prices drop.
GBP/JPY technical analysis
The daily chart shows that the GBP to JPY exchange rate continued its strong bull run this week. It has now moved above the upper side of the rising wedge pattern shown in red. In most cases, this is one of the most popular bearish signs.
The pair has constantly remained above all moving averages. At the same time, the MACD indicator has remained above the neutral point. The Relative Strength Index (RSI) has pointed upwards.
Therefore, the outlook for the pair is bullish, with the next point to watch being at 200. The stop-loss of this trade will be at 194.
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