GBP/JPY spiked after the BoJ decision: What next ahead of the BoE?

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Written on Oct 31, 2023

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The Japanese yen continued its downward trend after the BoJ rate decision.
The bank left interest rates unchanged at -0.10% and tweaked its yield curve program.
The Bank of England (BoE) will deliver its rate decision on Thursday.

The GBP/JPY exchange rate bounced back on Tuesday as investors assessed the latest Bank of Japan (BoJ) interest rate decision. The pair rose to a high of 183.58, higher than this week’s low of 180.80. Similarly, the USD/JPY pair jumped to over 150, a few points below the highest point this year.

BoJ and BoE rate decision

The GBP to JPY rate drifted upwards after the latest BoJ interest rate decision. In a statement, the bank decided to leave interest rate unchanged at minus 0.10%. It has left rates in this level for over seven years.

Most importantly, the bank signaled that it was ending the yield curve control (YCC) program soon. It did that by allowing yields on the benchmark ten-year bond yields rise above the important level of 1%. It was the second time in three meetings that the bank has tweaked this policy.

Like in other countries, Japan’s bond yields have been rising in the past few months. The 10-year yield jumped to 0.95% on Tuesday and analysts expect it will continue rising in the coming weeks.

The next key catalyst for the GBP/JPY pair will be the upcoming rate decision by the Bank of England (BoE) decision set for Thursday. Economists polled by Reuters believe that the bank will leave interest rates unchanged.

The UK economy is going through a slowdown as the cost of living crisis escalated. The most recent data showed that the headline Consumer Price Index (CPI) remained above 6% in September.

Other reports showed that the economy is going through a serious stagflation. House prices have slumped, retail sales is slowing, and business confidence is still low. Therefore, a rate hike by the BoE could make a terrible situation worse.

GBP/JPY forecast

GBPJPY chart by TradingView

The GBP to Yen pair has been in a strong uptrend in the past few months. It started the year at 155.37 and peaked at 186.68. The pair has now formed a symmetrical triangle pattern. Also, it has moved above the 50-day and 25-day Exponential Moving Averages (EMA).

The triangle pattern is nearing the confluence level. Therefore, the outlook for the pair is bullish, with the next level to watch being the year-to-date high of 186.68. If this happens, the pair will rise by 1.80% in the coming days.