The Japanese Yen (JPY) showed a slight recovery during Asian trading on Friday, but that didn’t last. Meanwhile, the British pound (GBP) has bounced back, climbing from a low of 214.59 to above 215.00, putting the GBP/JPY pair in a good spot to finish a three-week rally.
Even with multiple warnings from Japanese officials and increasing speculation about potential interest rate hikes by the Bank of Japan, the yen still remains weak, nearly erasing all gains it achieved after the intervention scandal from April 30.
Finance Minister Satsuki Takayama stated on Friday that Tokyo is ready to take “decisive action” against market volatility. This warning is just the latest in a series issued over the week, although the impact so far has been minimal.
The yen’s decline is attributed to a mix of low Japanese government bond (JGB) yields and worries about Japan’s economy’s sensitivity to rising oil prices. Hawkish comments from Bank of Japan Governor Kazuho Ueda have highlighted inflation as a core concern in the bank’s monetary strategy, yet they haven’t really boosted the sluggish yen.
Technical analysis: The dip continues to find buyers
Currently, GBP/JPY is trading at 215.04, maintaining a position above the upward trend line from mid-May lows and showing a generally positive outlook. Momentum indicators on the 4-hour chart reflect some bullish pressure, with the Relative Strength Index (14) nearing 60, while the Moving Average Convergence Divergence (MACD) hovers at a slightly negative level.
However, the pair could hit resistance near Thursday’s high of 215.15 and a weekly peak of 215.55. Looking upward, the April 30th high of 216.60 is on the radar. On the downside, initial support appears around 214.70, followed by a previous congestion floor at 214.35. A drop below these points might lead to the May 21st and 28th lows close to 213.30.
(The technical analysis in this story was developed using AI tools.)
(This article was corrected on June 5, 08:16 GMT to note that GBP/JPY’s decline is attracting buyers, rather than sellers, as previously stated.)
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most actively traded currencies globally. Its value is influenced not only by overall trends in Japan’s economy but also by specific factors like Bank of Japan’s policies, the differences in bond yields between Japan and the U.S., and the prevailing risk sentiment among traders.
Exchange control is one of the Bank of Japan’s responsibilities, making its actions crucial for the yen. The bank sometimes intervenes in currency markets, typically aiming to devalue the yen, although such interventions are infrequent due to political considerations with major trading partners. Since 2013, the Bank of Japan’s ultra-easy policy has contributed to a growing gap between its policy and those of other major central banks, causing the yen to weaken. Recently, the gradual easing of this policy has provided some lending support to the yen.
Over the past decade, the Bank of Japan’s commitment to ultra-easy monetary policies has widened its divergence from others, particularly the U.S. Federal Reserve. This divergence has confirmed a growing gap between U.S. and Japanese 10-year bonds, favoring the U.S. dollar over the yen. However, the gap is beginning to close as the Bank of Japan slowly steps back from its ultra-easy policies in 2024, amid interest rate reductions from other major central banks.
Often perceived as a safe haven, the Japanese yen tends to attract investors during market stress. When uncertainties arise, capital is often funneled into the yen, which is viewed as stable and reliable, consequently nudging its value upward against riskier currencies.
