GBP/JPY outlook: Neutral to bullish in the short term
During the September 22 trading session, the GBP/JPY cross-pair exhibited a neutral trend. The pair formed a bearish candlestick featuring relatively long upper and lower wicks. Trading ranged from a low of 209.512 to a high of 210.891, with the price currently hovering around 209.990 on the FXOpen chart.
Looking at price action over the past two days, a significant risk of correction persists despite the underlying bullish bias. The primary focus is now on the policy divergence between the Bank of England (BoE) and the Bank of Japan (BoJ), as well as the yen's trajectory following the recent interest rate hike.
UK fundamentals show August inflation rising to 3.1% year-on-year—a five-month high. However, core inflation remained at 2.6% and services inflation at 3.4%, suggesting that underlying inflationary pressures are not yet overly alarming. While the BoE held rates steady at its last meeting, the market still anticipates a future hike, particularly if energy-related price pressures persist.
The UK's fiscal situation is also a point of concern. The government recorded £18.3 billion in borrowing for August—exceeding forecasts—making the market sensitive to debt and fiscal issues ahead of the October 28 budget announcement. Overall, the GBP continues to find support from expectations of higher interest rates, though this support is not entirely robust.
Japanese fundamentals are a crucial factor for GBP/JPY. The BoJ recently raised interest rates by 25 basis points to 1.25% (up from 1%), marking a roughly 31-year high. However, this hike has failed to strengthen the JPY, as the market perceives the BoJ's stance as remaining relatively cautious. Dissenting views among two BoJ members have created uncertainty regarding future moves. Consequently, the JPY remains relatively weak, which mathematically supports an upward move in GBP/JPY.
Nevertheless, the market remains wary of potential JPY strengthening. With Japanese interest rates beginning to rise, the risk of a "carry trade unwind" is growing. Should investors suddenly seek safe-haven assets and buy the yen, GBP/JPY could fall rapidly.
Tensions in the Middle East remain a key focus. Persistently high energy prices are fueling safe-haven dynamics. As anxiety rises, capital flows may shift toward the JPY. Warnings or verbal intervention from Japanese officials regarding the Yen's weakness could also trigger a decline in GBPJPY.
A key factor today is the development of the conflict involving Iran and the potential reopening of the Strait of Hormuz. Falling oil prices—following the prospect of the Strait reopening—have eased some inflationary pressure. While interest rate expectations may support the GBP, a simultaneous shift to "risk-off" sentiment could strengthen the JPY, creating a more complex net effect on the GBPJPY pair.
Technically, GBPJPY is trading below the 200-day EMA. The projected fair value range is 207.500–211.000. Immediate support lies around 208.000, with the next target at approximately 206.800. Immediate resistance is around 210.500, with the next target at approximately 211.500. This forecast could be wrong.
