GBP/JPY jumps to highest level since December 2015 after BoJ leaves policy settings unchanged

• GBP/JPY attracts some dip-buying on Friday and hits a fresh multi-year peak on Friday.
• The BoJ’s decision to stand pat weighs on the JPY and acts as a tailwind for the cross.
• Bets for more BoE rate hikes underpin the GBP and remain supportive of the move.

The GBP/JPY cross reverses an Asian session dip to the 178.80 region and spikes to a fresh high since December 2015 after the Bank of Japan (BoJ) announced its policy decision.

As was widely expected, the Japanese central bank stuck to its dovish stance and left its ultra-loose policy settings unchanged at the end of the June monetary policy meeting this Friday. Apart from this, reduced bets for an intervention by the Japanese government to stabilize the domestic currency, along with a generally positive tone around the equity markets, weigh on the Japanese Yen (JPY). This, in turn, assists the GBP/JPY cross to attract some dip-buying on the last day of the week.

The British Pound (GBP), on the other hand, continues to draw support from expectations that the Bank of England (BoE) is not yet done with rate increases as inflation in the UK, which, at 8.7% YoY in April, is still more than four times the 2% target. In fact, the markets have fully priced in another 25 bps lift-off, from 4.5% to 4.75% on June 22. Moreover, investors now see a greater chance that the rate will peak at 5.5% later this year. This is seen as another factor acting as a tailwind for the GBP/JPY cross.

That said, the Relative Strength Index (RSI) on the daily chart is flashing overbought conditions and might hold back traders from placing fresh bullish bets around the GBP/JPY cross. Investors might also prefer to move to the sidelines and now look to BoJ Governor Kazuo Ueda's comments for a fresh impetus. Nevertheless, spot prices remain on track to register strong weekly gains and seem poised to prolong its recent strong upward trajectory witnessed over the past five weeks or so.

Technical levels to watch