As we came into February, GBP/JPY remained in a steady up-trend that had been in-force ever since the lows of the GBP Flash Crash of 2016. Prices in the pair perched-up to a fresh 18-month high on just the second trading day of the month, at which point a tonality change began to show. The big driver here appears to be Yen-strength, as this is something noticeable in other pairs such as EUR/JPY and even USD/JPY, which is in the process of testing a big zone of longer-term support.
The driver appears to be emanating from rising rates of inflation in Japan, bringing with it the potential for a Euro-like scenario in the Japanese currency this year. That Euro scenario showed prominently in 2017, as stronger rates of growth and inflation led investors to buying the single currency in anticipation of an eventual move away from QE. To date, we still have no confirmed information of an actual move away from QE by the European Central Bank; we merely have signals that this may be in the offing. But, that has mattered little across the FX market as Euro-strength remains a prominent theme, and this is something that can keep interest brewing behind the Japanese Yen as inflation continues to show with strength in the island nation.
In GBP/JPY, that tonality change came in a rather undeniable fashion, as prices dropped by more than 1,000 pips in a month, breaking-below a key trend-line before finally finding some element of support off of the 145.00 psychological level.
The driver appears to be emanating from rising rates of inflation in Japan, bringing with it the potential for a Euro-like scenario in the Japanese currency this year. That Euro scenario showed prominently in 2017, as stronger rates of growth and inflation led investors to buying the single currency in anticipation of an eventual move away from QE. To date, we still have no confirmed information of an actual move away from QE by the European Central Bank; we merely have signals that this may be in the offing. But, that has mattered little across the FX market as Euro-strength remains a prominent theme, and this is something that can keep interest brewing behind the Japanese Yen as inflation continues to show with strength in the island nation.
In GBP/JPY, that tonality change came in a rather undeniable fashion, as prices dropped by more than 1,000 pips in a month, breaking-below a key trend-line before finally finding some element of support off of the 145.00 psychological level.