GBP/JPY has hit a new high for the year at 199.48 due to threats of US tariffs against Japan, which have weakened the Japanese Yen. Currently, GBP/JPY is trading above 199.00, showing a strong upward trend with support at important levels. On Monday, the US informed Japan about a planned 25% tariff on Japanese imports starting August 1. Japan hopes to negotiate to prevent further complications, emphasizing the need for a deal on automobile tariffs.

Impact on the Yen

The recent news has made the Yen less appealing, allowing GBP/JPY to rise. Even though there is a three-week extension for trade talks, existing tariffs are already affecting the Yen’s value. GBP/JPY is supported above 199.00, with the RSI indicator close to overbought levels, suggesting the pair may consolidate in the short term. Immediate support is at 198.81. If it falls below this level, we could see it retrace to 195.03. Resistance is marked at the day’s high of 199.48, with further resistance at 199.81 and the significant level of 200.00. The Yen is influenced by the Bank of Japan’s policies, bond yield differences, and overall market sentiment, all of which affect its value. With GBP/JPY reaching fresh highs for 2024, particularly at 199.48, this movement is driven by geopolitical and trade policy factors. The planned 25% tariff on Japanese imports by Washington has shaken investor confidence in the Yen. This has resulted in a sharp decline in the Yen, boosting GBP/JPY’s upward momentum. Right now, the pair is holding strong above 199.00.

Tokyo’s Diplomatic Response

Tokyo’s response focuses on diplomacy, as officials seek a bilateral agreement to avoid further economic strain. They are focusing on reaching an understanding about automotive tariffs, a historically sensitive issue between the two countries. As long as negotiations remain uncertain, the market will likely continue to disregard Japanese assets. Despite a recent short extension for trade discussions, traders have already factored in higher tariff risks, leading to ongoing selling of the Yen against other currencies, not just Sterling. The Yen’s weakness is driven more by the search for stability amid uncertainty than immediate economic fundamentals. From a technical perspective, the RSI nearing overbought levels suggests there might be temporary hesitation or short covering. However, this does not indicate an overall reversal. Unless we see a decisive close below 198.81—our nearest significant support—the broader uptrend should remain intact. Breaking above 199.81 again would increase the chances of testing the psychological level of 200.00, which might attract option-related hedging or tactical profit-taking. The Bank of Japan’s continued dovish stance compared to other countries is also keeping the JPY under pressure. With Gilt yields relatively stronger and bond yield differences favoring Sterling, there’s additional support for GBP/JPY. Market sentiment is changing slowly, especially since growth and inflation data in the UK appear steady compared to Japan. For now, any retracements should be monitored closely. A drop towards 195.03 would likely require falling below 198.81, which may only happen if trade tensions significantly ease or if there’s an unexpected shift in Tokyo’s policy tone. Until then, momentum strategies may work better than range-bound tactics, with dips viewed as buying opportunities. We will be watching upcoming economic data, especially on wage growth and inflation expectations, to see if monetary policy needs adjustment. However, in the short term, price movements seem more responsive to trade dynamics than broader economic indicators. In this environment, technical levels are offering useful guidance while policy changes continue to influence short-term flows. Create your live VT Markets account and start trading now.

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