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The GBP/JPY pair attempted to rise above the round level of 218.00.
Rumors of potential intervention by Japanese authorities to support the national currency are putting pressure on spot prices; however, a favorable fundamental backdrop supports bullish sentiment among traders.
Japanese Finance Minister Shunichi Suzuki confirmed the government's readiness to take decisive action in the currency market if necessary. Additionally, reports on Thursday indicated that representatives of the Bank of Japan are prepared for a faster increase in interest rates, which would provide further stimulus for the Japanese yen. At the same time, the British pound is under pressure due to mixed inflation data from the UK published on Wednesday, further limiting the growth of the GBP/JPY exchange rate.
However, the negative consequences are mitigated by significant differences in monetary policy between Japan and other countries. The cost of borrowing in Japan remains extremely low compared to other major economies, including the UK. In June, the BoJ cautiously began normalizing monetary policy by raising the short-term interest rate to 1.00%, the highest level since 1995. Meanwhile, the Bank of England's base rate is at 3.75%, creating a 275-basis-point difference.
These circumstances support so-called carry trades, a key factor contributing to the relative weakening of the Japanese yen. Additionally, investors remain concerned that Japan's economy is vulnerable to global shocks in energy supply chains, amid significant reductions in shipping through the Strait of Hormuz due to escalating tensions between the US and Iran. This creates a backdrop for bearish sentiment toward the Japanese yen, implying that any correction in the GBP/JPY exchange rate may be seen as a buying opportunity and is likely to remain limited.
From a technical perspective, the pair has found solid support at the 9-day EMA, which coincides with the round level of 218.00. Oscillators are positive and far from the overbought zone, confirming bulls' advantage in the market. Accordingly, the path of least resistance for the pair is upward.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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