GBP/JPY rises past 181.50, threatening the 20-day SMA

• GBP/JPY cleared most of its weekly losses trading near 181.80 tractioned by rising British yields.
• Investors continue to look for clues regarding a potential BoJ YCC policy tweak.
• BoE’s tightening expectations have fallen, and markets now see rates peaking at 6.25%.

On Friday, the Sterling traded with gains agains the JPY, but it is still poised to close a weekly decline. However, the GBP/JPY downside potential may be limited while investors are looking for clues on whether the Bank of Japan (BoJ) will tweak its monetary policy in July.

As for now, markets have already largely discounted a 50 basis point (bps) hike in the August 3 Bank of England (BoE) meeting and foresee 25 bps hikes in September, November and in Q1 2024, which would see the policy rate peaking at 6.25% vs the 6.50% terminal rate expected at the beginning of the week. 

Despite tightening expectations falling, British bond yields are on the rise and lend support to the GBP.  The 2-year bond yield rose more than 1% to 5.19% while the 5-year rate to 4.58%, up by more than 1.50%, while the 10-year rate stands at 4.44%, seeing 0.80% increases.

On the other hand, investors are looking for clues regarding the next Bank of Japan (BoJ) meeting in July. Former bank official Hideo Hayakawa commented that “it is highly probable” that the bank will adjust the Yield Control Curve policy and that if they don’t, “it doesn’t make sense”. Economic data will continue modelling expectations, so traders will eye next week's Trade Balance data from Japan from June to be reported on Thursday.

GBP/JPY Levels to watch

Despite two consecutive gains days, the outlook is still negative for the pair. Indicators gained some ground but still show weakness with the Relative Strength Index (RSI) near its midline while the Moving Average Convergence Divergence (MACD) prints red bars. To confirm a recovery, the bulls must retake the 20-day Simple Moving Average (SMA) at 182.25.

Support Levels: 181.00, 180.50, 179.00.
Resistance Levels: 182.25 (20-day SMA), 182.50, 183.00.

GBP/JPY Daily chart