GBP/JPY Technical: Bearish breakdown from 4-month range

• Japan’s overnight swap rates have indicated rising odds of a BoJ interest rate hike next week.
• JPY crosses have lost upside momentum in the last four weeks; the weakest among the G-10 is the GBP/JPY.
• A potential looming medium-term downtrend phase has kickstarted for GBP/JPY.

This is a follow-up analysis of our prior report “USD/JPY: Yen strength elements emerged ahead of BoJ meeting next week” published on 16 January 2025. Click here for a recap.

In the run-up to next Friday, 24 January, the Bank of Japan (BoJ) monetary policy meeting outcome where the consensus is now expecting the BoJ to resume its normalization stance and hike its short-term policy rate by 25 basis points (bps) to bring it higher to 0.50%.

Fig 1: Japan overnight indexed swap rates medium-term trends as of 13 Jan 2025 (Source: MacroMicro, click to enlarge chart)

The spread of the 3-month and 6-month Japan overnight indexed swap rates have started to widen again since 25 December 2024 over the 1-month swap rate. The 3-month and 6-month swap rates have risen to 0.36% and 0.42% respectively, above the 1-month swap rate at 0.31% as of 13 January (see Fig 1).

The widening of the 3-month and 6-month Japan overnight indexed swap rates over its 1-month counterpart suggests an increased odds of an incoming BoJ interest rate hike.

Fig 2: 1-month rolling performances of G-10 JPY crosses as of 17 Jan 2025 (Source: TradingView, click to enlarge chart)

The Japanese yen has not just strengthened against the US dollar but also against other major currencies. Based on a one-month rolling performance as of 17 January, the GBP/JPY is the weakest among the G-10 yen cross pairs with a loss of 3% (the yen has strengthened the most against the pound sterling) (see Fig 2).

Fig 3: GBP/JPY medium-term trend as of 17 Jan 2025 (Source: TradingView, click to enlarge chart)

This week price actions of GBP/JPY have staged a bearish breakdown below a four-month plus range configuration in place since the 5 August 2024 low.

Through the lens of technical analysis, the GBP/JPY is likely to have kickstarted a medium-term (multi-week) downtrend phase that is similar to the prior down move from the 11 July 2024 high of 208.12 to 5 August 2024 low of 180.10 (see Fig 3).

In addition, the daily MACD trend indicator has continued to inch lower below its centreline after the bearish breakdown of its former key parallel ascending trendline support on 16 January, in turn, reinforces the potential start of a new medium-term downtrend phase for the GBP/JPY.

Watch the 194.70 key medium-term pivotal resistance (also the 50-day and 200-day moving averages) with the medium-term support coming at 180.10 (also the long-term secular ascending trendline from the March 2020 low). A break with a daily close below 180.10 increases the odds of the materialization of the medium-term downtrend phase to expose the next support zone at 175.50/172.10 in the first step.

On the flip side, a clearance above 194.70 invalidates the bearish scenario for a squeeze up to retest the 30 October 2024 range resistance of 199.70/80.