GBP/JPY plunges on hard Brexit concerns and talk of BOJ “mini-tapering”

• GBP under stress on renewed concerns about a hard Brexit.
• The Yen strengthened on talk of BOJ “mini-tapering”.

GBP/JPY is now trading around 147.00 in New York session, down by 1.55% on the renewed concerns of a hard Brexit after major differences emerged between UK and EU regarding various conditions in the exit draft prepared by the European Commission on Wednesday.

The perception of a soft or an orderly Brexit is looking very remote now on the Irish border issue and under the circumstances, another Brexit referendum can’t be ruled out with a change in government or leadership. Article 50 does make provision for a reverse in the event of a change of government.

Although a no Brexit will be of huge positive for the Sterling, the situation is not there and the underlying Brexit uncertainty is affecting the currency right now along with ongoing UK political jitters, as the British PM Theresa May is being cornered by her own party colleagues.

It now also seems that the EU will not allow the UK for a smooth Brexit as par the illusion of the UK government and at the same time may not also allow UK to enjoy the dual benefit of a devalued currency and a free access to the EZ for its products and services.

On the other side, Yen got further strength in the US session on Wednesday amid US political jitters out of Muller’s Trump and Russian saga. The yen soared earlier in the day on BOJ “mini-tapering” after the BOJ cut the 25-40Y JGB purchase by a peanut (10 bln Yen).

Apart from this BOJ “back-door” tapering the Yen was also boosted by BOJ´s Governor Kuroda who said that the BOJ won’t continue its current powerful monetary easing once inflation hits its 2% target in a stable manner, even if the government puts pressure on the central bank to keep interest rates low.

The market knows that the  BOJ is increasingly out of its “bazooka” amid a scarcity of eligible QQE bonds, everything being equal. Thus a gradual “stealth tapering” may be an eventuality for the BOJ in the coming days, while the GBP is still on an uncertain path amid ongoing Brexit squabbling.

Technically, GBPJPY now has to sustain above 146.90-145.95; otherwise, 143.85-143.40 and 142.65 may come soon. For any meaningful recovery, GBPJPY must stay above 150.00-151.25 for 152.25-153.25 and 154.70.