GBP/JPY rallies to mid-160.00s on BoJ inaction, Kuroda’s speech, UK inflation eyed

• GBP/JPY jumps more than 200 pips on BoJ status-quo.
• Bank of Japan left benchmark rate, YCC policy unchanged despite high expectations.
• Yields drop, US stock futures regain upside momentum on BoJ move.
• BoJ Governor Kuroda’s speech, UK CPI, RPI for December will be watched for clear directions.

GBP/JPY braces for the biggest daily gains in two weeks after the Bank of Japan (BoJ) disappointed the Yen buyers during early Wednesday, up 1.80% intraday near 160.40 by the press time. Adding strength to the cross-currently pair’s upside momentum could be the hopes of upbeat inflation data from the UK.

BoJ announces no changes to their monetary policy settings in December, maintaining rates at -10bps and the 10-yr Japanese Government Bond (JGB) yield target unchanged at 0.00%. Other than the absence of change in the BoJ’s Yield Curve Control (YCC) policy and the intact rates, the BoJ’s quarterly outlook report also allowed the GBP/JPY pair to brace for the biggest daily upside since mid-June 2022.

In a reaction to the BoJ’s disappointment, the US Treasury bond yields reverse the early-day rebound to drop towards 3.50% while the S&P 500 futures printed 0.30% intraday gains, following the mildly negative marks of the intraday performance.

Although the BoJ has already disappointed the GBP/JPY bears, traders will pay attention to Governor Haruhiko Kuroda’s speech as the policymaker may convey his dislike for the YCC policy after it pushed the Japanese central bank to spend roughly 6% of the Gross Domestic Product (GDP) defending its yield target in the last month alone.

Following that, the UK’s Consumer Price Index (CPI) and Retail Price Index (RPI) for December will be crucial after the British jobs report impressed the Sterling buyers the previous day.

Also read: UK Inflation Preview: Another soft CPI to hit Pound Sterling, here’s why

Technical analysis

Despite crossing the downward-sloping resistance-turned-support line from early December, close to 159.40 by the press time, as well as the 160.00 round figure, a three-week-old resistance line near 160.65 challenges the GBP/JPY bulls.