GBP/JPY set for fifth straight day of gains, but continues to struggle to push above 162.00

• GBP/JPY is set for a fifth straight session of gains, though continues to struggle to push above 162.00.
• The yen remains out of favour due to the ongoing rise in global yields following this week’s Fed/ECB hawkishness.
• But doubts are creeping in that the BoE will live up to tightening expectations, capping GBP/JPY upside for now.

GBP/JPY’s steady upside grind that has been in motion for the whole week so far has continued on Thursday, with the pair now on course to post a fifth successive daily gain. Global yields continue to move higher, with notable breaks higher seen in US yields on Thursday against the backdrop of hawkish commentary from Fed policymakers all week, plus recent Fed and ECB minutes releases, both of which were hawkish.

This is not a good environment for the highly rate differential sensitive Japanese yen, which is at present suffering from the fact that the BoJ looks intent on maintaining its Yield Curve Control policy (keeping 10-year yields within 25 bps of zero). As global yields rise, this makes holding the yen less attractive.

But GBP/JPY’s on the week gains aren’t that impressive at just 0.8% at the time of writing. The pair continues to struggle to push to the north of the 162.00 level, which looks like it might be in the early stages of forming a double top (on the four-hour candlesticks).

The pullback in global equity markets isn’t helping the risk-sensitive pair, and neither is the comparatively modest moves higher recently in UK yields (versus US yields, for comparison). The tone of the BoE has shifted as of late to be more concerned about an expected growth slowdown from Q2 onwards, rather than being worried about inflation.

As a result, doubts about the bank’s conviction for further rate hikes are creeping in and denting pound sterling’s appeal. Many analysts are of the view that, especially in light of stagflationary events in Ukraine, the BoE will not live up to currently priced rate hike expectations for 2022. If this is the case, UK yields may not have much further to run to the upside.

While it is probably too early to bet on a GBP/JPY reversal lower given the yen remains very much out of favour, it's hard to see the pair progressing much higher. Late March highs above 164.00 will likely act as a ceiling in the next few weeks and a pullback to test support in the form of 2021 and early 2022 highs in the 158.00 area in the coming months seems a decent bet, assuming the BoE doesn’t live up to the hawkish hype.