Although the market has fallen drastically, buyers have previously shown up in this area, indicating that there is still significant support.
- The GBP/JPY experienced a significant drop against the Japanese yen during Friday’s trading session, with the market exhibiting a sense of negativity in terms of risk appetite.
- As a result, it’s not surprising that the Japanese yen is performing better than the British pound.
- Traders need to keep in mind that the Bank of Japan is still utilizing yield curve control, and the bond markets are a significant influence on the market’s direction.
The Bank of Japan is attempting to keep the 10-year JGB yield at 50 basis points, which distorts the market similarly to how other central banks have done in the past. To combat rising interest rates, they must buy bonds, which means printing yen and flooding the market with currency. This distorts the simple supply/demand equation, and if the Bank of Japan is flooding the market, the yen loses value. However, with interest rates dropping around the world, some of the pressure on the Japanese yen has been released, and several currencies around the world have fallen against it.
Additionally, concerns about global risks lead people to buy bonds, which drives down rates, resulting in a feedback loop that further supports the Japanese yen. This makes sense given the significant concerns in the market, leading to the pound falling against the yen. However, there is a lot of structural support for the pound near the ¥157.50 level, meaning that the downside is somewhat limited. Although the market has fallen drastically, buyers have previously shown up in this area, indicating that there is still significant support.
Despite the recent drop in the market, the fact that there has been significant support in the past leads some analysts to believe that this pair will eventually bounce back, possibly above the ¥160 level. It’s important to note that this is not a long-term buy-and-hold strategy, but rather a range-bound trading approach. Overall, the British pound is facing significant challenges against the Japanese yen, but there is still structural support in the market, leading some traders to believe that a bounce is possible. That being the case, I would be cautious about hanging onto the position for a longer-term move, as there are so many moving pieces around the world that continue to throw markets into tantrums from time to time. Remember, this pair is volatile under most circumstances.