The British pound rallied against the Japanese yen on Friday but did give back some of the initial gains as the 200-day EMA came into focus.
The British pound spiked against the Japanese yen after the Bank of Japan raised rates, mainly because the press conference was not overly hawkish. There were no massive threats of major interest rate hikes. A 50-basis-point rate hike in the short term has been taken off the table, which was something people had been looking for. So, the Japanese yen has lost a bit of its luster.
The market had recently turned around and gone bullish after crossing below the oversold condition in the stochastic oscillator. It now looks like piercing the ¥210 level is a good sign. We did not manage to blow through there, and we have given back quite a bit of the gains, but that makes sense. It was a massive knee-jerk reaction. These things quite often will have a little bit of a pushback.
But the interest rate differential has actually shrunk between these two currencies
It is still pretty wide because the Bank of England, of course, failed to raise rates on Thursday. Over the longer term, you still get paid to hold this pair, and we will have to wait and see exactly how the Japanese yen is treated around the world.
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Keep in mind that Japan has a major issue when it comes to energy as well. So, it will be interesting to see how the yen behaves in that environment as the supply of crude oil becomes increasingly threatened. The Ukrainians have attacked a Russian refinery, and the Saudis are now saying that perhaps some of their contracts to Europe and Asia may have to be put on hold due to a lack of ability to fulfill those contracts. Things could get very interesting here.
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