GBPJPY Eyes 200 as BOJ, BOE Diverge

Both central banks are expected to hold rates steady, but for widely different reasons that could put GBPJPY on a new leg of its rollercoaster ride.

Traders Keep Carrying On

As central banks move towards easing, carry traders might find refuge with the pound, as the BOE is expected to be the slowest of the major central banks to normalise rates. This means it might be up to the BOJ to close the interest rate gap between the currencies. But that might be hampered because the BOJ takes a very cautious approach to hiking. After the latest UK data, it could come down to the vote split at the BOE meeting to determine whether carry traders manage a sigh of relief and the currency pair heads towards 200 or forms another peak and starts trending downward.

The ONS data on Tuesday strengthened the case for the BOE to remain on hold. The unemployment rate remained steady at 4.3%, while average earnings surged to 5.2% annual growth from 4.4% prior, beating expectations of 4.7%. The claimant count registered lower than anticipated, underscoring persistent labour market tightness that has concerned BOE officials.

What it Could Mean for Policy?

To cement the UK trend, inflation climbed to 2.6% on Wednesday, its second consecutive increase. Though expected, core inflation proved more contained, given the BOE forecast of higher energy and food costs through year-end. The headline rate reached 3.5%, below the expected 3.6%, leaving markets with a firm stance of no immediate rate adjustment. Futures currently price in 70bps of easing throughout 2025, marginally down from 75bps earlier this week. The vote distribution could sway market sentiment, with perennial dove Swati Dhingra expected to favour cutting rates.

Meanwhile, markets remain split on the probability of a BOJ rate hike, with Governor Kazuo Ueda sending mixed signals. Ueda warned against protracted low borrowing costs while expressing concern over sluggish economic growth. A Reuters poll pointed to the BOJ holding rates but signalling potential easing early next year, citing recent yen stability and the need to reassess US-Japanese trade dynamics. A hold decision could propel GBPJPY higher by maintaining the rate differential, while a hike might pressure the pair as carry trade appeal diminishes.

GBPJPY on Course to 200?

GBPJPY maintains its bullish structure from the 188.00 low despite showing signs of exhaustion near the peak of 196.00. While it continues to trade above the 192.50 swing support, the uptrend towards the 200.00 handle remains intact, with intermediate resistance observed at 197.80. Recent price action suggests the formation of a potential flag pattern, with the break of 194.44 pointing to a move towards the psychological 190.00 mark. This would increase the odds of a longer-term head-and-shoulder pattern.

Key Takeaways

GBPJPY stands at a climactic point ahead of the BOE and BOJ policy decisions this week. While UK wage and inflation data reinforce the BOE holding rates, uncertainty surrounds the BOJ's stance as Governor Ueda sent mixed signals to the markets about hiking. The technical setup suggests continued upside potential towards the 200.00 handle, though traders should remain alert around the key resistance at 196.00 given the impending policy meetings.