Pound Strengthens Against Yen as BoJ Holds Steady
The British Pound has been gaining ground against the Japanese Yen, as the Bank of Japan (BoJ) refrained from signaling an imminent rate hike. The GBP/JPY exchange rate has been capped at around 210.00 since late September, with the latest attempt on Tuesday falling just short. The Pound's strength is attributed to easing Treasury yields, while the Yen remained steady due to the BoJ's lack of new signals regarding rate adjustments. BoJ Governor Ueda indicated that the bank plans to continue raising rates, but market futures suggest this is likely to happen later rather than sooner.
The interest rate gap between the UK and Japan could widen by mid-November. Currently, the UK's Bank Rate stands at 3.75%, while the BoJ's rate is at 1.25%, offering a 2.50% advantage for holding Pounds over Yen. Market expectations point to a Bank of England (BoE) rate hike in November, while an October BoJ hike appears unlikely, which could further widen the interest rate differential.
Japan's intervention in currency markets, particularly its Yen-buying efforts since late July, has also influenced the exchange rate. While USD/JPY has dropped about six yen since then, GBP/JPY has remained within a narrower range. Upcoming events, such as Japan's August pay data and a speech by BoE Deputy Governor Lombardelli, could provide further direction for the currency pair. A weaker Japanese pay figure or a more hawkish Lombardelli could both push the exchange rate higher.
From a technical perspective, GBP/JPY has found resistance at 210.00, with the next key levels being 211.00 and the 200-day Exponential Moving Average (EMA) near 211.50. Support is seen at 208.50 and 207.00. The daily Stochastic Relative Strength Index (Stoch RSI) suggests a potential pause at 210.00 before a breakout, with buyers maintaining an edge above 208.50.