GBP/JPY Forecast: GBP to JPY Outlook Amid a BOJ and BOE Divergence

The GBP/JPY price is holding steady as the divergence between the Bank of Japan (BOJ) and the Bank of England (BOE) continued. The GBP to JPY is trading at 165.03, which is about 3.12% above the lowest level last week. This price is about 2.25% below the year-to-date high. 

BOJ and BOE divergence

The Japan yen to GBP price is holding steady as investors focus on the divergence between the BOJ and BOE. Last week, the BOE decided to hike interest rate for the fifth straight meeting in a bid to fight inflation. 

The initial rate hikes seem to have been ineffective since the country’s inflation has been soaring in the past few months. Analysts believe that the UK will publish strong inflation data on Wednesday. Precisely, they expect the data to show that inflation surged to 9.1% in May. This will make it the highest inflation rate in the G7.

Meanwhile, the Bank of Japan continued with its dovish tone as it left interest rate unchanged and warned that it could even losing its policies. Still, with the Japanese yen at its lowest level in over two decades, investors believe that the BOJ will soon tighten. Besides, it is the only dovish central bank after the Swiss National Bank (SNB) surprised the market by hiking interest rates by 0.50% last week. 

The BOJ prefers a weak Japanese yen in a bid to promote exports. However, many companies are now struggling to deal with imports. For example, discount chains like Daiso Industries are facing existential threats considering that most of its items are sourced from Southeast Asia. In a statement to FT, the company’s CEO said that it will maintain its Y100 ($0.75) price tag.

In addition to the UK inflation data, the GBP/JPY pair will react to several important events this week. The ONS will publish the latest UK retail sales on Friday and the latest Japanese inflation numbers. While Japan’s inflation has risen, it remains substantially lower than in other countries. 

GBP/JPY forecast

Turning to the three-hour chart, we see that the GBP to JPY pair has been holding steady in the past few days. The pair remains slightly below the middle line of the Andrews Pitchfork indicator while the 25-period and 50-period moving averages have made a bullish crossover pattern. The MACD has also moved above the neutral point.

Therefore, the GBP/JPY price will likely continue rising as bulls target the key resistance at 166.25, which was the highest point last Friday. A drop below the support at 164.50 will invalidate the bullish view.