Last week, the GBPJPY currency pair experienced a sharp decline following the Bank of Japan’s decision to expand the range in which 10-year Japanese government bond yields can trade. While the BoJ retained the 0.5% yield cap as a reference, this move could bring about significant changes in global investment patterns and the potential repatriation of funds to Japan. 

However, this move doesn’t necessarily indicate a full-blown tightening of monetary policy, as negative interest rates are still in place at the short end. The yen’s recent volatility against the dollar played a role in the BoJ’s decision, raising concerns about potential political intervention in the currency’s level. Furthermore, the BoJ has stated that it needs more time to reach its 2% inflation target. Was this move a technical adjustment or the beginning of a more significant tightening cycle? 

Technical 

The GBPJPY currency pair was consolidating rangebound between the 179.793 support and the 182.414 resistance; however, the currency pair broke out of the channel at the Golden Ratio due to a shift from the BoJ and established major support at 177.314. Since establishing support, the currency pair has recovered from some of its losses, landing it back within the channel at the 182.414 resistance.  

If the 78.60% Fibonacci level fails to hold, the currency pair may attempt to retest the 183.803 major resistance due to expectations of further tightening from the Bank of England (BoE). However, the 182.414 resistance could hold as it is the range’s upper bound, which may encourage a pullback towards the 179.793 support at the lower boundary of the range.  

Summary 

The GBPJPY currency pair consolidated rangebound, but a shift from the BoJ encouraged a pullback towards the 177.314 major support. Since recovering, the price action could retest the 183.803 major resistance, but the 182.414 resistance could hold, which may encourage a pullback towards the 179.793 support. 

Sources: TradingView, Reuters, Financial Times, CNBC 

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