GBP/JPY rockets above 160 for first time since 2016, now back to pre-Brexit levels

• GBP/JPY saw a historic rally on Tuesday, surging above resistance at 158.00 to hit more than five-year highs above 160.00.
• That marked a 1.9% gain, the best on-the-day rally since November 2020.
• Tuesday’s push higher takes the pair on-the-month gains to now nearly 4.0%, as higher stocks/yields hurt the yen.

GBP/JPY saw a historic rally on Tuesday, surging above a key long-term area of resistance around 158.00 to surpass 160.00 for the first time since June 2016. That marked a 1.9% gain, the best on-the-day rally since November 2020, on the day when Pfizer announced successful Covid-19 vaccine trial results. Tuesday’s push higher takes the pair on-the-month gains to now nearly 4.0% and means that GBP is, against the Japanese yen at least, back to its pre-Brexit levels.

A continued improvement in risk appetite in global equities coupled with a historic run higher in US and global bond yields as the Fed pivots hawkishly has had disastrous effects for the yen, which has been battered across the board, including versus GBP. But GBP/JPY’s on-the-month gains aren’t as strong as some of its other G10 peers like AUD/JPY and NZD/JPY, given 1) GBP is more exposed to economic weakness as a result of the Ukraine war and 2) GBP is still being help back by last week’s dovish BoE policy announcement.

Looking ahead, GBP/JPY trades may fear that the pair’s rally is getting a little overextended and if the recent rally in global equities and yields slows/reverses, the pair will likely see some profit-taking. The previous ceiling of 158.00 for 2021 and the start of 2022 may now have turned into a floor, with any retracement back to this area likely to be viewed as a good buying opportunity, assuming market conditions are still unfavorable to the risk appetite/yield sensitive yen. In terms of the economic calendar, UK Consumer Price Inflation and Retail Sales data for February and flash PMI data for March will be worth a watch, as well as remarks from various BoE policymakers throughout the week.