• GBP/JPY closed near 186.50, its highest since November 2015.
• Monetary policy divergence between the BoE and BoJ is the primary driver of the cross.

At the start of the week, the GBP/JPY cross leapt towards 186.50 as the GBP continued to trade strong against the JPY, driven by hawkish bets on the Bank of Japan. Last week, the UK reported hot inflation and wage figures from July, which made markets discount a terminal rate of 6% vs 5.75% at the start of the week, resulting in GBP closing the week as a top performer.

On the other hand, reports suggest that the Bank of Japan (BoJ) will only consider tightening if local wage and inflation figures meet their forecasts. Dovish bets on the BoJ weakened the Yen. In addition, the fragile economic situation in China is also driving the JPY downwards, as it is one of Japan’s largest trading partners.

GBP/JPY Levels to watch

According to the daily chart analysis, short-term prospects for GBP/JPY look bullish. Both Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain positive, implying a strengthening bullish momentum. Also, the pair is above the 20-, 100-, and 200-day Simple Moving Averages (SMA), highlighting the continued dominance of bulls on the broader scale.

Support levels: 186.00, 185.50, 185.00.

Resistance levels: 187.00, 187.50, 188.00.

GBP/JPY Daily chart