GBP/JPY retreats to 169.00 as yields drop ahead of BOJ

• GBP/JPY steadies after reversing from a six-year high, bears struggle to keep the reins.
• Treasury yields brace for the first weekly loss in 11 amid mixed signals from US data, ECB’s Lagardge.
• Sellers also cheer reduction in the UK’s political optimism as British macros lack in number.
• BOJ is likely to keep the monetary policy unchanged but inflation forecasts will be crucial for JPY moves.

GBP/JPY remains sidelined around 169.00, following a U-turn from an 80-month high, as traders await the key Bank of Japan (BOJ) Monetary Policy Meeting decision on Friday.

The cross-currency snapped a three-day uptrend while reversing from a multi-year high the previous day. The pullback move, however, stalls of late.

In addition to the pre-BOJ anxiety, the downbeat Treasury yields and a lack of major positives from the UK could also be held responsible for the GBP/JPY pair’s latest weakness.

That said, the US 10-year Treasury yields dropped to a two-week low on Thursday after the US Gross Domestic Product (GDP) and Personal Consumption Expenditure (PCE) failed to impress bond traders. On the same line were mixed comments from the European Central Bank (ECB) President Christine Lagarde. That said, Japan’s 10-year government bond yields (JGBs) dropped 4.0% on Thursday after refreshing a four-month high during the mid-week.

It’s worth noting that the chatters surrounding a likely shift in the BOJ’s inflation outlook and Japan’s meddling to defend the yen, despite any acceptance from policymakers in Tokyo, could also be linked to the GBP/JPY pair’s recent weakness.

Furthermore, an escalation in the Russia-Ukraine tension and recently easing pressure on the Bank of England (BOE), especially after Rishi Sunak became Prime Minister and the British activity numbers for October came in softer, also exert downside pressure on the quote.

Moving on, all eyes are on the BOJ’s verdict even if the Japanese central bank is likely to keep the six-year-old monetary policy intact. The reason could be attributed to the hopes of an upward revision to the inflation forecasts and Governor Haruhiko Kuroda’s exit in 2023.

Also read: Bank of Japan Preview: Time to start with subtle changes in the monetary policy?

Should the BOJ refrain from any surprises, while the economic predictions also remain dull, the GBP/JPY pair may reverse the latest pullback move.

Technical analysis

Although the RSI (14) and MACD both suggest that the buyers are running out of steam, a 12-day-old support line challenges the GBP/JPY bears around 168.60.