The latest in the drama that is unfolding in UK politics is that new Chancellor Jeremy Hunt has effectively ripped up Prime Minister Truss’ mini budget proposal, which was laid out on September 23^rd by former Chancellor, Kwarteng.  Some of the major, controversial items in the plan have already been reversed, including a proposed 45% tax cut for high-income earners, and sticking with former PM Johnson’s plan to raise corporate tax rates from 19% to 25%.  Today, the new Chancellor continued with the reversal of plans and said, “We will reverse almost all the tax measures that were in the growth plan”.  But can Liz Truss survive the reversal of her own budget?  Some are already suggesting that secret meetings are taking place to find her replacement. Markets will be keen on this during the week.  In addition, the Bank of England ended its short emergency bond-buying program put in place to save the UK economy. Will the economy be able to stand on its own 2 feet by itself now?  Not to be overlooked, the UK will also release September’s CPI on Wednesday.  Expectations for the headline print to creep back up to 10% YoY.  The BOE said they see it topping out at 11%.  Will this print cause the BOE to hike 75bps on November 3^rd?

The Bank of Japan intervened in the FX market on September 22^nd and with the help of a weak Pound, brought GBP/JPY all the way down to 148.79 on September 26^th.  Since then, the pair has retraced the entire move and took out the June 9^th highs of 168.72 on Monday.  Will the BOJ intervene again? This is a major question as the market’s sit on pins and needles waiting for the BOJ.  Price is currently above the levels when the BOJ intervened the first time and markets remain jittery.  Last week, Finance Minister Suzuki said that he is watching FX with a high sense of urgency and will take appropriate action against excessive FX movers.  In a related note, the BOJ’s Kuroda said over the weekend that the BOJ is continuing with its monetary easing policy, as headline inflation is likely to fall below 2% over the next fiscal year.  This week, Japan release its own CPI data for September.  Expectations are for the headline print to increase from 3.0% YoY to 3.2% YoY.  However, the Core reading, which excludes fresh food, is expected to climb from 2.8% YoY to 3.0% YoY.  Will Kuroda still feel the same if inflation continues to move higher?

GBP/JPY traded to a high of 169.73  on June 9^th, its highest level since February 2016.  Between June 9^th and September 21^st, the pair had been oscillating in a range between roughly 160 and 168.  On September 13^th, GBP/JPY began making a move lower from 168.00.  After the BOJ intervention, combined with the mini-budget proposal and the BOE intervention in the Gilt market, the pair traded to a low of 148.79 by September 26^th.  However, markets began fading the BOJ intervention.  It also became more and more content with the reversal of PM Truss’ mini-budget.  On Monday, the pair made a new high above the June 9^th highs.  Between September 26^th and October 17^th, GBP/JPY has moved over 1887 pips higher!

Source: Tradingview, Stone X

On a 240-minute timeframe, GBP/JPY has already moved above the June 8^th levels by a good amount.  In addition, the pair has broken out of a flag pattern from the off the lows, on October 11^th, and is on its way towards target near 175.20  Above current levels, the first resistance is at the 127.2% Fibonacci extension from the highs of September 13^th to the lows of September 26^th at 173.24 and then horizontal resistance dating to April 2015 at 174.88.  The next resistance isn’t until the 161.8% Fibonacci extension from the previously mentioned timeframe at 179.90.  First support is at the June 8^th highs of 168.01.  Below there, support is at prior lows of 165.03 and 162.32. The 200-Day Moving Average then crosses at 160.89.

Source: Tradingview, Stone X

The UK political picture seems to be working itself out. As a result, GBP is moving higher.  However, with CPI due out of the UK and Japan this week, as well as the threat of BOJ intervention, GBP/JPY could continue to be volatile.  Watch the flag formation o the 240-minute timeframe. There is still a lot of room for the pair to move to reach its target.

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