GBP/JPY traces yields to retreat towards 163.00 amid challenges for BoE hawks

• GBP/JPY pares the biggest daily gains in six weeks, reverses from a fortnight high.
• Talks of tough pension regulations, easing supply chain hurdles prod BoE’s hawkish bias.
• BoJ officials’ defense of easy-money policies contrasts with likely run-up in inflation.
• Japanese wage accords, stable economic outlook advocate BoJ’s exit from ultra-loose policies.

GBP/JPY drops back towards 163.00, down 0.30% intraday near 163.10 during early Thursday, as it reverses from a two-week high amid mixed sentiment and a sluggish session. In doing so, the cross-currency pair traces downbeat Treasury bond yields while also justifying the receding inflation fears in the UK, as well as the challenges for the Bank of Japan (BoJ) officials’ defense of the easy money policy.

US 10-year and two-year Treasury yields marked their first daily loss in three on Wednesday by ending the North American trading session around 3.57% and 4.10% respectively, making rounds to the same level by the press time.

Elsewhere, Reuters quotes the UK’s 13.1% jump in car production during February to mark the easing in the supply-chain woes, which in turn challenges the Bank of England (BoE) Governor Andrew Bailey’s previously hawkish statements. Additionally, BOE policymaker Catherine Mann flagged challenges for the UK’s central bank to do its job in the second half of the year, which in turn hints at likely hurdles for the hawks.

On a different page, the BoJ policymakers, including the outgoing Governor Haruhiko Kuroda, advocates for an easy money policy but the latest wage accord and Prime Minister Fumio Kishida’s readiness for higher wages can challenge the ultra-loose policies. Recently, global rating agency Fitch Ratings affirmed Japan’s sovereign credit rating at ‘A’ while maintaining a ‘stable’ outlook. “Base case remains that BoJ will maintain its loose monetary policy over the medium term,” said Fitch.

It’s worth mentioning that the nuclear threats from Russia and North Korea join the US-China tussles to also weigh on the GBP/JPY prices. Even so, optimism on technology and banking fronts keeps the S&P 500 Futures firmer.

Moving on, a light calendar can allow the cross-currency pair to extend the latest pullback.

Technical analysis

A clear upside break of one-month-old descending trend line, now immediate support around 162.30, directs GBP/JPY buyers towards the monthly high of 164.25.