The yen has been weakening for the past three days, not only paired with the dollar, but in almost all cross-pairs. The American currency reacted to good non-financials today, so now it's worth paying attention to the pound/yen pair, which is less dependent on the events in the US.
The cross GBPJPY demonstrates the upward trend primarily because of the weakness of the Japanese currency: the pound is in a rather "suspended" state in response to conflicting fundamental factors. On one hand, the optimistic statement of the head of the Bank of England and the expectation of further tightening of monetary policy, and on the other hand - weak PMI for December and January, as well as nervousness about Brexit.
And yet, despite the load of negative factors, the British currency looks much more attractive than the yen, at least at this stage. There are several arguments in favor of the pound.
First, it is the growth of British inflation, labor market and GDP. Key indicators of the economy demonstrate a steady positive trend, especially in terms of lower unemployment and an increase in the consumer price index. The appreciation of the pound will certainly slow down this process, but here one should not forget about the growth of the oil market, which also affects the inflationary processes. The head of the Bank of England did not ignore the positive trends. Recently, he optimistically assessed the state of affairs not only in the British economy, but also in the world economy. Also, Mark Carney expressed confidence in the further increase in the level of wages (the last release came at the level of the forecast, and in annual terms even exceeded expectations), thereby increasing the probability of accelerating rates of rate hike.
At the moment, the market is discussing the possibility of raising rates at the May meeting. The probability of this scenario is just over 50 percent. August rates are higher - about 80%. Macroeconomic statistics and the position of members of the Bank of England (except for some representatives) indicate that the regulator is ready to move from words to deeds, at least once this year. Moreover, if the dynamics of inflation continues, the central bank will have to react to the price pressure in the country. Also, next week (February 8), the regulator will update its forecasts for inflation and economic growth - and with a high degree of probability, Carney will hint at the approximate timing of the rate increase in 2018.
The risk of "hard" Brexit has also fallen into the background. Last week, the market was agitated by various rumors about this, as well as expressed demands of Brussels on the conditions of the transition period. However, to date, the panic mood has faded. In many respects, due to the fact that Theresa May reiterated her desire to agree on free trade with the European Union. Moreover, according to her, an agreement on the withdrawal of Britain from the EU will be ready within the next seven weeks. This optimistic attitude was supported the pound.
The British pound found another argument for its growth in China. Or rather, following the visit of Theresa May to Beijing. The United Kingdom and China made agreements amounting up to nine billion pounds. The British even declared their desire to sign a free trade agreement after the final withdrawal from the EU. On the whole, the visit was quite productive: the parties started talking about a new, "golden" era of trade relations between the countries. It should also be recalled that last year Theresa May visited the countries of the Persian Gulf, where she also secured financial support - in particular, Qatar promised to invest 5 billion pounds in energy, infrastructure and real estate.
In other words, the asset of the pound is the "hawkish" intentions of the English regulator, the growth of key macroeconomic indicators and the likelihood of a deal between Brussels and London.
The Japanese currency does not have such global problems, similar to Brexit, but does not have any support from the regulator. It should be noted that in early January, the Japanese central bank purchased long-term state bonds (from 10 to 25 years) for 190 billion yen, that is, cutting this amount by 10 billion yen. In addition, the central bank reduced the same amount of purchases of long-term government bonds (25-40 years). After that, the market began to talk about the fact that the regulator will gradually tighten its monetary policy, curtailing the stimulus program. However, after the January meeting of the Bank of Japan it became clear that the market misinterpreted these actions. Moreover, the regulator increased the purchase volume of bonds with a maturity of 5 to 10 years from 410 billion to 460 billion yen, while assuring the market that the incentive program will remain in effect until inflation reaches its target level.
Thus, soft monetary policy is maintained in Japan at least until the end of this year: among the regulator members only one official expressed disagreement with such a scenario. And given the fact that Haruhiko Kuroda, most likely, will remain on the second term of office, there are no cardinal changes from the Bank of Japan.
The technical picture of the pound/yen pair also speaks about the priority of the northern direction: on the daily chart the price is between the middle and top lines of the Bollinger Bands indicator, and the indicator Ichimoku Kinko Hyo demonstrates the bullish signal "Line Parade". The target of the upward movement is the upper line of the Bollinger Bands indicator - 156.75. The support level is the price of 154.22 - the Tenkan-sen line on D1.
