GBP/JPY stays bullish around mid-175.00s amid dovish BoJ concerns, Treasury bond selling


  • GBP/JPY sticks to mild gains at the highest levels since January 2016.
  • Mixed concerns about the UK’s growth fail to tease sellers as BoJ officials keep defending easy money policy.
  • Bond markets portray heavy selling pressure ahead of the key central bank decision.
  • Downbeat Japan PPI adds strength to bullish bias ahead of UK employment data, BoJ monetary policy meeting.

GBP/JPY remains on the front foot for the fourth consecutive day as bulls prod the highest levels since early 2016 amid the initial hours of Monday’s European session. In doing so, the cross-currency pair prints mild gains to justify the market’s acceptance of the monetary policy divergence between the Bank of England (BoE) and the Bank of Japan (BoJ). Adding strength to the upside momentum are the firmer bond yields preparations for this week’s top-tier data/events.

Hawkish concerns about the BoE fail to justify the latest comments from the policymakers as BoE’s Catherine Mann said earlier in the day that the UK government needs long-term agenda to defend the growth prospects. However, the UK’s Confederation of British Industry (CBI) trade body said on Monday that Britain’s economy now looks likely to sidestep recession entirely this year but deep-rooted problems like weak business investment will persist.

The same join too high inflation in the UK compared to Japan to keep the BoE vs. BoJ divergence in favor of the GBP/JPY bulls.

On the other hand, Japan’s Producer Price Index (PPI) for May dropped for the fifth consecutive month to 5.1% YoY from 5.8% previous readings and 5.5% market forecasts. That said, monthly figures also disappointed Yen traders with -0.7% MoM outcome, versus -0.2% expected and 0.2% prior. After witnessing downbeat Japan inflation data, BoJ Deputy Governor Masazumi Wakatabe rules out any change in the BoJ monetary policy during this week’s meeting as he said, “Don’t expect a change from BOJ at this week’s meeting.”

Elsewhere, Bloomberg cites heavy selling pressure in the Treasury bond market to favor the yields and the GBP/JPY prices. “Hedge funds extended their record selling streak of short-dated Treasuries amid bets the Federal Reserve’s fight with inflation is far from done,” said the news.

On the contrary, recent hawkish bets supporting the BoJ’s exit from the ultra-easy monetary policy seem to challenge the GBP/JPY bulls.  The yields on Japanese Government Bonds (JGBs) fell on Monday as investors strengthened bets for the Bank of Japan to leave stimulus settings unchanged at its meeting this week, reported Reuters.

Moving on, Tuesday’s UK employment data will be important for the pair watchers ahead of Friday’s BoJ.

Technical analysis

A daily closing below the previous resistance line stretched from early May, around 175.20 by the press time, becomes necessary for the GBP/JPY pair’s short-term pullback. Even so, the late 2022 peak of around 173.00 challenges the sellers.

Meanwhile, the 180.00 round figure and September 2015 low near 180.30 appear to restrict the cross-currency pair’s upside moves.