GBP/JPY Price Forecast: Pound rallies to long-term highs above 208.11

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The Yen is suffering on Tuesday, in the aftermath of a 7.5-magnitude earthquake in Japan. JPY weakness has boosted the GBP/JPY to breach the resistance area at 207.35 and the 2024 high at 208.11 to reach its highest levels since 2008.

The Pound hits fresh multi-year highs above 208.70 against a weaker Yen.
Japan's earthquake cast doubt on BoJ's tightening plans and hit the JPY.
GBP/JPY has broken the top of a triangle pattern and the 2024 peak, at 208.11

Investors are considering the possibility that the earthquake's damage might force the Bank of Japan to delay an interest rate hike planned for next week. On Tuesday, BoJ Governor Ueda confirmed the bank's commitment to gradual monetary tightening, but the positive impact on the Yen has been limited so far.

Technical analysis: GBP/JPY has broken the triangle pattern

The Pound finally broke the top of the triangle pattern formed during the last two weeks and confirmed its bullish trend, breaching the 2024 peak, at 208.11. The Relative Strength Index (RSI) in the 4-hour chart has reached overbought levels, but the Moving Average Convergence Divergence (MACD) remains above zero, highlighting the positive momentum.

On the upside, the pair might find resistance at the 161.8% Fibonacci extension of the November 20-26 rally, at 209.15, ahead of the 210.00 psychological level. The triangle’s measured target is at 210.30.

Bearish reactions are likely to find support at the previous 207.35 resistance area (the November 26, 27, and December 3, 5 highs). Further down, Monday’s low, near 206.50, and the December 5 low, at 206.20, are likely to challenge bears ahead of the December 1 low of 205.20.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

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