GBP/JPY steadies near 198.00 as Yen weakens, UK PMI signals slowdown

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The GBP/JPY steadies on Friday, snapping a four-day losing streak after sliding to its lowest level since August 7 on Thursday. At the time of writing, the cross is holding firm near the 198.00 handle, easing back from an intraday high around 198.55.

GBP/JPY consolidates near 198.00 after rebounding from Thursday’s two-month low around 197.50.
The Yen weakens as Japan’s August Unemployment Rate climbs to 2.6%, beating the 2.4% forecast and rising from 2.3% in July.
Sterling struggles to gain traction after UK Composite PMI drops to a five-month low of 50.1; Services PMI softens to 50.8.

The Japanese Yen (JPY) came under pressure earlier in the Asian session after domestic data disappointed, with the August Unemployment Rate rising to 2.6% exceeding the forecast of 2.4% and up from 2.3% in July.

The British Pound (GBP), however, struggled to capitalize on the Yen’s weakness as the latest UK Purchasing Managers Index (PMI) figures signaled slowing economic momentum. The S&P Global Composite PMI slipped to 50.1 in September, down from 53.5 in August, while the Services PMI eased to 50.8, falling short of the 51.9 forecast and marking a sharp pullback from August’s 16-month high of 54.2.

From a technical perspective, GBP/JPY is attempting to stabilize above the 198.00 mark after a sharp pullback this week. A decisive break below 198.00 would turn the spotlight toward the previous day’s low at 197.50, and further weakness could deepen the correction toward the 196.24 low from August 7.

On the upside, 198.50 acts as the first line of resistance, closely aligned with the 21-period Simple Moving Average (SMA) at 198.38, maintaining the near-term outlook bearish bias as long as prices remain below it. If buyers manage to pierce this level, attention would quickly turn to the 199.00 mark, where the 50-period SMA resides as the next key hurdle for a bullish reversal.

Momentum indicators still lean in favour of sellers. The Relative Strength Index (RSI) has rebounded from oversold territory seen earlier this week but remains below the neutral 50 mark, suggesting that upside momentum is still limited unless the RSI climbs above 55. Meanwhile, the Average Directional Index (ADX), hovering near 30.5, indicates that the recent downtrend retains moderate strength despite the current pause.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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