GBP/JPY shot higher to reach 163.47 on a day when the cross rallied from 161.34 on broad Yen weakness. The yen retreated after Japan’s government approved ¥2.2tn of reserve money to tame escalating price pressures. 

However, as analysts at Rabobank noted, the window of opportunity for policy tightening for the BoJ now appears to be even smaller than before the banking crisis given the BoJ is unlikely to tighten policy if the US economy is facing down a recession.

´´It remains the case that growth in Japan is already fairly lacklustre. That said, while the JPY may not see much support from policy tightening this year, it is likely to act as a safe haven,´´ the analysts said.

However, they note that risk appetite has improved this week, the global economy has to become accustomed to operating in a higher interest rate environment. ´´That suggests that the stresses of the past few weeks are unlikely to be the last. We maintain a 3 mth USD/JPY131.00 forecast.´´

For the cross, GBP has derived some support from the recently better-than-expected UK economic data may have provided some recent support as well. However, talk of a policy pause clearly made the market nervous ahead of last week’s Bank of England meeting where the BoE hiked by 25bp to 4.25% with 7 members voting for a 25bp hike and two members voting for keeping the Bank Rate unchanged.

´´Overall, the forward guidance was limited with the BoE leaving the door open for another hike at the May meeting if persistent inflation pressures persist,´´ analysts at Danske Bank argued.

´´We revise our forecast to include a final 25bp hike in May, marking a peak in the Bank Rate at 4.50%,´´ the analysts said. ´´Our expectations are in line with current market pricing (currently 30bp priced until August 2023) as we expect the rest of the BoE committee to increasingly turn less hawkish amid a weakening growth backdrop and easing labour market conditions.´´