GBP/JPY finally corrects downwards, Yen still vulnerable

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• The GBP/JPY fell to a low of 182.14, seeing more than a 0.50% loss on the day, then stabilising near 182.55.
• British yields fell sharply, weakening the Sterling Pound after Gov. Bailey’s speech at the ECB forum.
• Kazuo Ueda kept its dovish tone, worrying about inflation being below the BoJ’s target.

The GBP/JPY finally corrected downwards after five consecutive days of gains, with a loss of over 0.50% on the day, as falling British yields dampened the appeal of the British pound. Despite the correction, the Japanese Yen remains vulnerable as Kazuo Ueda maintains a dovish stance, expressing concerns about inflation falling below the Bank of Japan’s target—eyes on inflation data from Japan at the early Friday Asian session.

British gilts weakened somewhat after Bailey’s speech 

On Wednesday, Governor Andrew Bailey from the Bank of England (BoE) stated that “they are not nearly done” regarding monetary policy as he showed concerns about core inflation being “much stickier” than headline inflation, which he expects to come down markedly in 2023.

In the meantime, the British bond yields are declining and show that investors are seeing a negative outlook on the UK’s economy, and they signal a higher demand for bonds. In that sense, the 2,5 and 10-year yields declined more than 1% falling to 5.13%, 4.55% and 4.30%.

Contrarily, Kazuo Ueda continued to express a dovish perspective by affirming that “underlying inflation remains below the targeted level.” He further indicated that a potential policy adjustment would be considered when inflationary pressures align with the Bank of Japan’s forecasts. In that sense, inflation figures as per the Tokyo Consumer Price Index (CPI) from June, to be released early Friday, will affect the JPY price dynamics. As for now, investors foresee an acceleration of the headline figure to 3.8% YoY and the Core measure to 4.4%.

GBP/JPY Levels to watch

According to the daily chart, despite the downward correction, the bullish outlook for the cross is still intact. However, the Relative Strength Index (RSI) is still in overbought territory, suggesting that the additional downward movements shouldn’t be removed.

Support levels to watch: 181.80,181.00, 180.00
Resistances levels to watch: 183.00,183.50,184.00

GBP/JPY Daily chart