- A sharp rise in UK (and world) yields hit the yen hard on Monday, with the GBP/JPY pair subsequently rising 1.0%.
- The pair has risen to 163.50 despite risk aversion flows being seen in other asset classes (stocks).
- This is because the higher yield environment plus more dovish comments from the BoJ prevented the yen from benefiting from safe haven flows.
Weaker-than-expected UK GDP figures for February, while they may help deter the BoE from raising interest rates as aggressively in the coming quarters, did not deter pair bulls. GBP/JPY Monday. Indeed, as UK bond yields rode a wave of rising yields across major developed economies on the first day of the week, widening rate spreads have helped the pair climb nearly 1.0%, where it is now trading above 163.50.
That marks a rally of more than 150 pips from last Friday’s closing levels at 162.00 and a rally of almost 200 pips from daily lows at 161.60. For reference, UK 10-year yields have risen almost 10 bps on Monday to 1.85%, their highest level since January 2016, while Japan’s 10-year yields remain capped below upper bounds. of the BoJ range of -0.25%.
On Monday, dovish comments from the BoJ did not help the yen’s cause at the start of the week, with the bank reiterating the need for its ultra dovish policies to continue. The divergence between the central bank and performance has meant that the yen has been unable to benefit from safe-haven demand on Monday, even though global stocks have been falling amid geopolitical issues and China lockdown.
If the trend of higher yields across the globe continues this week, GBP/JPY has a very good chance of testing and breaking its March highs above 164.50. GBP/JPY traders will also have plenty of data to watch, including UK consumer price inflation and labor market figures. These would likely play second fiddle to broader macro trends (such as rising yields).
Technical levels
Source: Fx Street
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