The Bank of England’s Vlieghe has taken a more hawkish shift from his neutral perspective yesterday. The key comment was that he expected the UK to transition out of the furlough scheme more smoothly than expected and that a somewhat earlier rate rise would be appropriate. This is a hawkish shift from a neutral BoE member and a shift from his earlier position on the path of the UK’s monetary policy.

The JPY has a fundamental bearish bias as the general risk tone has improved over the last few months on good news concerning vaccination progress. The coordinated support of monetary policy and fiscal support is helping the way for a post-COVID-19 recovery. This should keep the JPY weak.

Therefore, there is a near term buying bias for the GBPJPY.

Major Trade Risks:

• The main risk to this trade is from any risk-off tones which will strengthen the JPY.
• The emergence of a COVID-19 vaccine-resistant variant will invalidate this outlook.
• A breakdown in the fast UK recovery will also invalidate this outlook.