- GBP/JPY looks set to end the day lower around 156.00, but has recovered well from previous lows below 155.50.
- Next week will be a busy week for the pair, with the BoJ setting policy and many tier one UK data releases.
A combination of aggressive comments on BoJ rate hikes and safe-haven demand amid choppy/mixed trading conditions in US equity markets helped propel the yen to the top end of the performance chart. of the G10 on Friday. Although strong UK GDP and industrial production figures helped sterling hold up quite well, it was not enough to outperform the yen’s gains, with the cross GBP/JPY on track to end the day around 0.3% lower just above the 156.00 level.
That puts the pair on track to lose around 0.5% on the week, but the GBP/JPY recovery from previous session lows below 155.50 is notable. However, for the technicians, the key test will be whether the pair can close above the 156.00 level, which has acted as an important level of both resistance and support in recent weeks. A close above this level could put GBP/JPY in a better position heading into the week ahead, a week filled with important fundamental drivers for both the Yen and the British Pound.
Starting with the former, the BoJ will decide on monetary policy on Monday. Sources suggested a few weeks ago that the bank will improve its inflation forecasts amid higher-than-expected wholesale and energy price pressures raising inflation expectations in the country. But those same sources added that this increase in inflation forecasts would not be enough to spur political action from the bank. However, separate sources speaking to Reuters on Friday said lawmakers were now debating how soon they can start telegraphing an eventual interest rate hike, which could come even before the bank hits its 2.0 inflation target. %.
This suggests some hawkish line risk heading into Monday’s meeting, which could further support the yen. Japan’s consumer price inflation data for December will be released later in the week (on Thursday). GBP/JPY traders will also be keeping an eye on next week’s UK labor market, December consumer price inflation and December retail sales figures, which are likely to influence the BoE’s next monetary policy decision. on February 3. Market participants are divided on whether or not the bank will raise interest rates, which will automatically trigger balance sheet liquidation.