The British pound fell on Wednesday against the Japanese yen, as the markets are likely to continue to see a lot of carry traders running to it. With this, the drop that we have seen could open the possibility of value hunting.
GBP/JPY
The British pound has fallen pretty significantly against the Japanese yen during trading on Wednesday as we continue to see a lot of noisy behavior overall. This is a market that has been noisy, as we are likely to see a lot of headline risks, at least as far as risk appetite is concerned.
That being said, this is a market that has been a favorite of mine as the interest rate differential favors the British pound so widely. The carry trade has been in vogue around the world recently, and this is one of those pairs that people really seem to like when it comes to the carry trade, especially with the Japanese seemingly stuck. They can't raise their rates too much, because if they do, then you have a situation where the debt becomes out of control. So, they have a choice of either a weaker yen or an economy that just implodes. It's a very difficult place to be right now working at the Bank of Japan.
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The Bank of Japan and the Carry Trade
That being said, the sell-off has been rather strong, but we are already starting to bounce a bit as I anticipate that these dip buyers and value hunters will continue to be a major driver in this market.
Overall, I still don't like the Japanese yen, and I do like the British pound, as it is a relatively strong currency in general. So, with this, I am a buyer of dips. I also recognize, though, that on Friday, we will get a jobs number and that could cause chaos. But as things stand right now, I like looking for value and taking advantage of the swap at the end of every day.
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