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GBP/JPY has changed its trend to the downside in late November after poor economic data like services and manufacturing contraction, high inflation and GDP contraction which may ignite bets of rate cuts by the Bank of England. On the contrary, the Bank of Japan is still uncertain on whether to raise interest rates at their upcoming meeting.
Recent economic data showed a contraction in GDP, with the economy shrinking by 0.1% in October 2024, following a similar decline in September. This unexpected downturn reflects weakness in the services sector and reduced output in production and construction.
GBP/JPY has come under pressure, signaling concerns about the overall health of the UK economy. Additionally, inflation remains a critical factor which still remains above 2%, complicating the Bank of England’s decisions on monetary policy. The BoE faces pressure on managing inflation and supporting growth, with potential rate cuts looming on the horizon to counteract economic stagnation.
The Bank of England is still expected to hold rates at 4.75% with uncertainty looming if rates are going to be moved at a changed pace depending on the data.
The Japanese Yen received upward support from safe-haven flows due to a slight deterioration in the global risk sentiment and poor economic data in the U.K. which triggered selling pressures for GBP/JPY, along with geopolitical tensions and trade war fears. But its gains might be limited due to uncertainty from the BoJ
Market expectations for a 25-basis point rate hike this month fell to just 23%, following reports that the central bank sees “little cost” in delaying further tightening.
BoJ officials have indicated that they want to see more evidence of wage growth before proceeding with additional policy adjustments. At the same time, some policymakers noted that the risk of a weak yen driving inflation higher was becoming less of a concern.
Meanwhile, data showed a slight improvement in sentiment among large Japanese manufacturers for the fourth quarter, providing some support for the outlook on the domestic economy.
While the outcome is uncertain, one thing is clear, a rate hike would likely trigger a major downside move in GBP/JPY as the Yen strengthens. On the other hand, if the BoJ keeps rates unchanged, there’s a solid chance of moving to the upside.
Technical Analysis
Source: TradingView
Price stablized around the pivot point after rebounding from support around 188.
Bulls may focus on 196.75 where resistance might be formed if price pushed back up.
Bears may focus on its previous low around 188 for support and might push the price below it if price was under bearish pressure.
