• GBP/JPY prolongs its upward trajectory and climbs to a fresh multi-year peak on Tuesday.
• The stronger UK wage growth data lifts bets for more BoE rate hikes and boosts the GBP.
• The BoE-BoJ policy divergence favours bulls and supports prospects for additional gains.

The GBP/JPY cross jumps to a fresh high since December 2015 following the release of the UK employment details, with bulls now looking to build on the momentum further beyond the 185.00 psychological mark.

The UK Office for National Statistics (ONS) reported that the ILO Unemployment Rate unexpectedly rose to 4.2% in three months through June from 4% in the previous month. Moreover, the number of people claiming unemployment-related benefits increased by 29K in July as compared to the 7.3K decline anticipated, though the reading for June was revised down from 25.7K to 16.2 K. This, along with strong wage growth data, provides a goodish lift to the British Pound and the GBP/JPY cross.

In fact, British annual pay excluding bonuses was 7.8% higher than a year earlier in the three months to June, representing the highest annual rate since records began in 2001. Furthermore, wages including bonuses accelerated to 8.2% – also the fastest in the ONS data excluding the coronavirus pandemic period when government job subsidies distorted the data. This adds to worries about long-term inflation and might force the Bank of England (BoE) to continue raising interest rates, despite looming recession risks.

In contrast, the Bank of Japan (BoJ) the Bank of Japan (BoJ) has stuck to its ultra-loose monetary policy and is the only major central bank in the world to maintain a negative benchmark interest rate. This, along with a stable performance around the equity markets, is seen undermining the safe-haven Japanese Yen (JPY) and assisting the GBP/JPY cross to prolong its upward trajectory witnessed over the past one-and-half-week or so. Bulls, meanwhile, seem unaffected by the upbeat Japanese GDP report released earlier today.

The preliminary government data showed that the Japanese economy expanded by 1.5% during the April-June period and the annualized growth stood at 6.0% as compared to the 3.1% anticipated and 2.7% in the previous quarter. This marks the third straight quarter of expansion. Nevertheless, a big divergence in the monetary policy stance adopted by the BoE and the BoJ suggests that the path of least resistance for the GBP/JPY cross is to the upside. Hence, any meaningful corrective slide is likely to get bought into.

Technical levels to watch

GBP/JPY