GBP/JPY at new highs, holding firm

• GBP/JPY at fresh highs around 163.40.
• The yen depreciates in general due to risk appetite.

The pair GBP/JPY rose to 163.47 on a day when the pair rallied from 161.34 on widespread yen weakness. The yen fell after the Japanese government approved the issuance of 2.2 trillion yen of reserve money to control escalating price pressures.

However, as Rabobank analysts point out, the opportunity to tighten the Bank of Japan’s monetary policy now seems even smaller than before the banking crisis, as the Bank of Japan is unlikely to tighten its monetary policy if the US economy is facing a recession.

Growth in Japan is still pretty mediocre. That said, even if the yen may not receive much support from monetary policy tightening this year, it is likely to act as a safe haven,” analysts say.

However, they point out that risk appetite has improved this week, the world economy has to get used to operating in a higher interest rate environment: “This suggests that the tensions of the last few weeks will probably not be the last.” ‘. We maintain a 3-month USD/JPY forecast of 131.00.”

In terms of the crosses, the British pound has gotten some support from UK economic data, which has been better than expected recently. However, talk of a pause in monetary policy clearly made the market nervous ahead of the Bank of England meeting last week, in which the Bank of England rose 25 basis points to 4.25%, with 7 members voting in favor of a 25 basis point hike and two members voting to keep the rate unchanged.

Overall, forecasts were limited and the Bank of England left the door open for a further hike at its May meeting if inflationary pressures persist,” Danske Bank analysts said.

We have revised our forecasts to include a final 25bp hike in May, setting the bank interest rate to a maximum of 4.50%,” the analysts said. Our expectations are in line with current market rates (currently 30bp through August 2023), as we expect the rest of the Bank of England Board to be less and less hawkish against a backdrop of weakening growth and easing labor market conditions.”

Markets are pricing in 30 basis points of cuts during the second half. We continue to believe that the first rate cuts will not occur before the beginning of 2024,” the analysts conclude.