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Long GBP/JPY – Pressure on Multi-Year Trendline The long-term slump in the GBP/JPY is in jeopardy. A confirmed breach over 156.00 opens the door to more gains. GBP/JPY is up roughly 30 percent from its mid-March 2020 bottom, with the daily chart displaying a succession of higher highs and lower lows along the way. The British Pound has benefited from this change, whereas the Japanese Yen has struggled due to a seemingly never-ending dovish monetary background. While the Bank of England (BoE) has recently stated that it is concerned about tightening monetary policy too rapidly and allowing inflation to become more entrenched, pricing pressures in the UK are increasing. The current UK inflation estimate of 2.1 percent (May) is over target, and while the central bank believes this increase will be temporary, they also admitted that inflation “is likely to surpass 3 percent for a limited period” due to changes in energy and other commodity prices. The Bank of England may keep its policy measures unchanged, but if inflation continues to rise over the next three months, so will Sterling. The Bank of Japan, on the other hand, continues to pursue a loose monetary policy, keeping interest rates in negative territory in order to keep the economy pumped up. Inflation is still low – the latest reading of -0.1 percent y/y is still below the central bank’s target of 2% – and the Bank of Japan expects GDP to increase by 4% this fiscal year, compared to a fall of 4.6 percent in 2020. In the bigger picture, the monthly GBP/JPY chart shows the pair at an interesting crossroads, with the 16-month rise now attempting to break above the multi-year downtrend. The first attempt failed, but when the two slopes continue to intersect, it is likely that more attempts will be attempted. Monthly Price Chart for GBP/JPY When we look at the daily chart with a smaller timescale, we can see that the multi-year downtrend is now holding but has been under continual pressure over the last month. A confirmed break above trend is required for the pair to advance higher, allowing a return to 156.00 and beyond. If a break above the long-term downtrend is verified, there is a cluster of high prints around 163.90 produced between February and April 2016, and this zone could be the next upside target for GBP/JPY. Daily Price Chart for GBP/JPY View each DailyFX Analyst’s favorite trades for the third quarter. From the DailyFX Free Trading Guides, download our new 3Q top trading possibilities!/nRead More

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