- GBP/JPY has turned decisively lower on Friday, falling more than 200 pips to 165.00 from previous highs above 167.50.
- Weak UK data and risk aversion flows into US stock markets were the main catalysts for the decline.
- That was enough to offset dovish comments from BoJ Governor Kuroda.
The GBP/JPY has turned decisively lower on Friday, falling over 200 pips back to the 165.00 level from previous highs above 167.50 to test support in the form of March highs. At current levels just above the big figure, GBP/JPY is trading with daily losses of around 1.3%, which would mark the pair’s worst daily decline since March 4, when currency markets were experiencing a period of severe risk with the Russo-Ukrainian war had started only a week before.
Since then, the forex market became more focused on the inflationary impact of the form and currencies began trading more based on central bank policy divergence than risk appetite. Currently trading at 165.00, GBP/JPY is still trading more than 9.0% above its March lows below 151.00, mainly due to the yen taking a massive hit in recent weeks on the idea that the BoJ would leave its policy settings unchanged as other major central banks (including the BoE) tighten to deal with inflation.
BoJ policy was in the spotlight earlier on Friday, with Governor Hurahiko Kuroda doubling down on his dovish stance that 1) inflation, while higher in the short term, still shows no signs of reaching the long-term target of 2.0% of the BoJ, which means 2) it is still appropriate to maintain the policies of negative interest rates and control of the yield curve. Those comments caused the yen to weaken at the time, and the GBP/JPY pair momentarily recovered from below 165.00 to above 165.50.
But since then, the pair has slid lower, mainly as a result of safe-haven flows from the more risk-sensitive pound into the yen as selling pressure mounted in US equity markets. risk is one of the reasons GBP/JPY is lower on Thursday (it largely explains the outsized drops in NZD, AUD and CAD as well), another factor that weighed heavily on sterling was the very weak data on the UK Friday. Analysts agreed that the data undermines the case for the BoE tightening in the coming months, and will likely justify why BoE policymakers in recent weeks have started sounding more concerned about the economy.
Source: Fx Street