GBP/JPY set for fifth straight day of gains but continues to struggle to break above 162.00

• GBP/JPY is poised for a fifth consecutive session of gains, although it continues to struggle to break above 162.00.
• The yen remains out of favor due to the continued rise in global yields following the aggressive stance from the Fed and ECB this week.
• But there are doubts that the BoE will live up to stricter expectations, capping GBP/JPY higher for now.

The constant upward movement of the GBP/JPY that has been on the move all week so far has continued on Thursday, with the pair now on track to post a fifth straight daily gain. Global yields continue to rise, with notable bullish breaks seen in US yields on Thursday against the backdrop of aggressive comments from Fed policymakers throughout the week, in addition to recent releases from Fed Minutes and the ECB, which were aggressive.

This is not a good environment for the Japanese yen, which is highly sensitive to rate spreads, and is currently suffering from the fact that the BoJ seems determined to maintain its policy of yield curve control (keeping yields at 10 years at 25 bp from zero). As global yields rise, this makes holding the yen less attractive.

But the earnings of GBP/JPY on the week they are not as impressive at just 0.8% at the time of writing. The pair continues to struggle to push north of the 162.00 level, which looks like it could be in the early stages of forming a double top (on 4-hour candlesticks).

The pullback in global equity markets isn’t helping the risk-sensitive pair, and neither are the recent comparatively modest upside moves in UK yields (vs. US yields, for comparison). The BoE’s tone has changed of late to be more concerned about an expected slowdown in growth from the second quarter, rather than concerned about inflation.

As a result, doubts about the bank’s doom for further rate hikes are rising and eroding the sterling’s appeal. Many analysts are of the opinion that, especially in light of the stagflation events in Ukraine, the BoE will not live up to 2022 rate hike expectations at current prices. If this is the case, UK yields may not have much more to go.

While it is probably too early to bet on a GBP/JPY reversal to the downside as the yen remains very out of favour, it is hard to see the pair progressing much further. Late March highs above 164.00 will likely act as a top in the coming weeks and a pullback to test support in the form of 2021 and early 2022 highs in the 158.00 area in the coming months looks like a decent bet assuming that the BoE does not live up to aggressive expectations.

Technical levels