GBP/JPY hits multi-year highs at 175.30, on BOJ’s dovish stance

• GBP/JPY closes four consecutive weeks of gains and hits its highest level since February 2016.
• The BOJ is expected to maintain control of the yield curve.
• Yield divergence between gilts and Japanese bonds favors GBP.

He GBP/JPY it has shot up to its highest level since February 2016, closing a week of four consecutive rises. This rally follows the dovish stance taken by the Bank of Japan (BOJ), which is expected to maintain its yield curve control policy to keep interest rates low over the long term. Yield divergence between UK gilts and Japanese bond yields has further favored sterling, adding to GBP/JPY momentum.

BOJ dovish stance weighs on yen

Bank of Japan (BOJ) officials acknowledged that inflation has exceeded initial forecasts, which may lead to upward revisions to the bank’s inflation forecasts in upcoming macroeconomic assessments. Despite this, the BOJ maintains a prudent stance and does not express confidence in reaching the sustainable inflation target of 2%. Consequently, policy makers stress the ongoing need to maintain monetary stimulus to support and stabilize prevailing economic conditions.

Elsewhere, rising yields amid expectations of a 4.5% to 4.75% rate hike on June 22 by the Bank of England (BOE) appears to be responsible for GBP/JPY’s bullish momentum. In this regard, UK yields generally rose, with 2.5-year yields up more than 1% on the session.

technical levels

Both the weekly and daily charts suggest that the bulls are clearly in charge of the short term. Specifically, on the daily chart, the Relative Strength Index (RSI) and Moving Average Divergence (MACD) are showing strength and in positive territory, with the pair trading above their main moving averages, indicating that the Buyers are in control.

Should the GBP/JPY continue to gain traction, the next line of resistance lies at the 175.50 area, followed by the 176.00 area and the 176.30 level. Elsewhere, in the event of a technical correction, support levels line up at the 174.40 zone and below the psychological level at 174.00 and the 20-day SMA at 172.90.

GBP/JPY daily chart