The GBP/JPY pair has entered a strong bearish phase this week, in line with other yen crosses, as market expectations rise that the Bank of Japan (BoJ) may soon tighten its monetary policy. The shift in sentiment has put downward pressure on the pair, with momentum building as key support levels are increasingly breached.
The catalyst for this shift lies in the global bond markets, where narrowing yield differentials between Japan and other major economies are driving the yen’s strength. This dynamic has been particularly evident after softer-than-expected inflation data from the US and the UK, which have led to declining global bond yields. In addition, weak US retail sales figures have contributed to a further decline in US bond yields, enhancing the attractiveness of the low-yielding Japanese yen.
The markets are now pricing in potential rate cuts by the Federal Reserve sooner than expected, which has sparked a rally in bond markets and driven yields lower across key economies. This has created a favorable environment for the Japanese yen, which has been bolstered by growing expectations that the BoJ will tighten its ultra-loose policy at next week’s meeting.
The GBP/JPY chart has shown significant bearish price action, with Wednesday’s formation of a bearish engulfing candle followed by continued downside momentum. This pattern is not unique to GBP/JPY, as similar moves are being seen across other major yen pairs.
Currently, GBP/JPY is testing key support around the 190.00 level. A decisive break below this critical level could signal further technical selling, potentially targeting the liquidity below the December low of 188.08 in the coming sessions.
In terms of resistance, the 192.85 to 193.50 zone now stands as a key area to watch. Meanwhile, yesterday’s low at 191.10 has become an important near-term resistance level, having been breached earlier, and could cap any potential upside in the short term.
As traders monitor developments around global bond yields and the BoJ’s upcoming policy decision, the outlook for GBP/JPY remains decidedly bearish, with potential for further downside should the yen continue to strengthen.
Related topics:
Sell & Buy in Forex: What Is the Difference?
What Are the 3 Benefits of Foreign Trade?
