GBP/JPY: Further downside scope for the pound on negative rate speculation – MUFG
Analysts at MUFG Bank consider a good trade idea to short GBP/JPY around 131.85, with a target at 126.60 and a stop loss at 134.10.
“We still have a bias favouring yen strength and looking at currencies to seek GBP against we see JPY as a good option. The JPY has under-performed in recent weeks so the move weaker in GBP/JPY has been less than GBP weakness versus other currencies.”
“Speculation on negative rates in the UK could spark selling in the Japan retail market where market participants have built substantial long positions. Declining yields outside of Japan is a key supporting factor for JPY and if speculation of negative rates in the UK persists it will increase downside pressure.”
“We are conscious that short GBP is already a popular trade and this is the risk in this trade – that we are entering a crowded position. However, as highlighted above, negative rates in the UK would be a very different prospect for GBP when compared to negative rates for EUR, JPY, CHF and SEK. A far greater negative hit for GBP is likely.”