GBP/JPY climbs for 3rd day as yen safe-haven bid fades

GBP/JPY extended its rally to a third consecutive session on Wednesday, trading near 185.40 during Asian hours, as the yen's traditional safe-haven appeal failed to assert itself while Middle East hostilities escalated.

"The breakdown in the typical risk-off correlation is striking — the yen should be bid given what's happening in the Gulf, but it's not," said Elena Fischer, geopolitical risk analyst at Edgen. "Markets are instead focusing on Japan's energy import vulnerability and the widening rate differential with the UK."

The pound bought 185.40 yen in Asian trading, up from 184.90 at Tuesday's close, while the euro also gained 0.07% against the yen to trade around 185.40. The moves came as the dollar index held flat at 100.9 after falling 0.4% on Tuesday — its biggest single-day drop in nearly two weeks — following softer-than-expected US inflation data. The US consumer price index rose 3.5% year-on-year in June, below the 3.7% consensus, and fell 0.4% month-on-month, the first monthly decline since April 2020.

The divergence matters because it signals a potential structural shift in how currency markets price geopolitical risk. If GBP/JPY sustains its break above the symmetrical triangle resistance near 185.60, the next target would be the April 17 all-time high at 187.95, with some analysts flagging 220.0 as a longer-term objective. A failure to hold above 185.00 — the 50-day exponential moving average — would expose support at 183.80 and the four-month low of 181.87.

The yen's underperformance reflects two competing forces. Japan imports roughly 90% of its crude oil, and the Strait of Hormuz blockade — reimposed by President Donald Trump on Tuesday — has pushed Brent crude to one-month highs, raising Japan's energy import costs and worsening its terms of trade. At the same time, the Bank of Japan's ultra-loose monetary policy keeps Japanese real yields deeply negative, while the Bank of England's benchmark rate at 5.25% offers a yield advantage that attracts carry traders.

The dollar's broader weakness has amplified the pound's gains. US inflation data released Tuesday showed the headline CPI falling 0.4% month-on-month, driven by a retreat in energy prices, which dampened expectations for a near-term Federal Reserve rate hike. Traders now price about a 65 percent chance of a September hike, down from roughly 80 percent before the data, according to LSEG data. Two-year US Treasury yields fell nine basis points from a 16-month high following the release.

"The market was building a conviction that the Fed was going to hike in September and it's certainly injected a bit of doubt into that now," said Chris Turner, head of global markets at ING. Turner added the Fed would probably need to see further soft inflation prints before ruling out a rate hike entirely this year.

The geopolitical backdrop remains the wild card. The US military said it had begun a fresh round of strikes in the Strait of Hormuz on Tuesday, while Trump reimposed a naval blockade of all Iranian ports. The last time the Strait of Hormuz was disrupted at this scale, during the 2019 tanker attacks, oil prices spiked 15 percent over six weeks and the yen strengthened as a safe haven. This time, the yen has failed to replicate that pattern, suggesting the energy-import channel is overwhelming the risk-aversion channel.

For GBP/JPY, the immediate technical test is the triangle resistance at 185.60. A daily close above that level would confirm a bullish breakout and open the path toward the all-time high. On the downside, the 50-day EMA at 185.00 and the nine-day EMA at 185.12 provide the first line of defense against a pullback.

This article is for informational purposes only and does not constitute investment advice.