GBP/JPY dribbles around 155.50 amid BOE vs. BOJ action, pullback in yields

• GBP/JPY licks its wounds with mild gains around 14-month low.
• BOE refrained from any action but BOJ announced unchanged bond buying to tame JPY weakness.
• US Treasury bond yields retreat after refreshing multi-year high.
• Bears are likely to keep the reins amid fears of more central bank meddling.

GBP/JPY consolidates the previous day’s losses around 155.60 as traders seek more clues amid the mixed performance of the Bank of England (BOE) and the Bank of Japan (BOJ). That said, the cross-currency pair snapped a four-day uptrend during Tuesday’s Asian session after the latest BOJ bond-buying announcement.

Early on Tuesday, the Bank of Japan (BOJ) announced an unscheduled monetary policy operation to defend the Japanese yen and tame the Japanese Government Bond (JGB) yields.

“The operations, which followed a rise in global yields overnight, were consistent with remarks by BOJ Governor Haruhiko Kuroda on Monday that the BOJ will not raise interest rates and will maintain an easy policy to support the economy,” stated the NewsRoom via Reuters. The news also mentioned that the BOJ offered to buy JPY150 billion of JGBs with a remaining life of 5 to 10 years and JPY100 billion of JGBs with a remaining life of 10 to 25 years.

Elsewhere, the BOE refrained from taking any immediate actions and weighed on the GBP, Before the latest rebound in the GBP/JPY. That said, when asked whether the government is planning to change the measures set out in the mini-budget, British Prime Minister Lis Truss' spokesman responded by simply saying "no," as reported by Reuters. The diplomat also mentioned that it is important that BOE independence remains while adding that we don’t comment on interest rates.

On the other hand, the BOE stated that they are monitoring developments in financial markets very closely in light of the significant repricing of the financial assets. The BoE further noted that they welcome the government’s commitment to sustainable economic growth and the role of the Office for Budget Responsibility.

Elsewhere, The UK Times stated that Labour has surged to its largest poll lead over the Conservatives in more than two decades, with voters turning against (UK Chancellor) Kwasi Kwarteng’s tax-cutting budget. A YouGov poll for The Times today puts Labour 17 points clear of the Tories — a level of support not seen since Tony Blair won his landslide victory in 2001.

Amid these plays, US Treasury yields retreat from the multi-year high while the S&P 500 Futures also print mild gains by the press time. That said, US 10-year Treasury yields rose to the highest levels in 12 years while the 2-year bond coupons refreshed the 15-year top as traders rushed to the risk safety. Further, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.

Moving on, a light calendar can allow a bit more consolidation of the GBP/JPY losses. However, the bearish bias is less likely to fade.

Technical analysis

Although the 200-DMA restricts GBP/JPY upside around 160.35-40, a 1.5-year-old horizontal support area near 148.45-55 appears a tough nut to crack for the bears.