Gbpjpy Struggles To Find Direction

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Gbpjpy Struggles To Find Direction

GBP/JPY Struggles To Find Direction, Trades Below 186.00

Yesterday's rally in the GBP/JPY added around 150 pips and pulled the cross from the 185.45 handles. However, it looks like the upward momentum has now stalled, as the pair is stuck in a narrow range under the 186.00.

According to experts, the recent price action of the GBP/JPY suggests that caution is needed as there is still no confirmation that the cross has officially moved out of the negative territory.

BoJ Expected To End Negative Rates

For starters, the Japanese Yen continues to outperform every other currency as of late under the assumption that BoJ will introduce a major policy shift. The proposed change of the interest rate policy will likely take place in the first few months of 2024. After all, it is the 18th month in a row that Japan is facing an overshoot of inflation.

So, that's a major factor that can be seen as positive for the JPY. As a result, it makes sense to think that the GBP/JPY is likely to head down despite staging a short-term recovery.

As for the risks towards the downside, well, they remain limited for now, but that could soon change as well. According to Andrew Bailey from BoE, the inflation reading by the end of 2023 will be actually lower than initially forecasted. However, he also added that upside risks to inflation are still present.

As a result, the Bank of England can't really discount the possibility of more rate hikes in the next few months. That's one factor that has allowed the GBP/JPY to stage a good recovery in the last few days.

But despite the recent price action, the long-term trend in the GBP/JPY is still towards the downside. In addition, the JPY is also supported due to its safe-haven assets as well as the good performance of the Japanese equity markets.

So, for those who believe that the GBP/JPY is only heading upward from here, some caution is needed as there are several signs that suggest otherwise.

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