Created on January 21, 2026

The interest rate differential is still wide enough to drive a truck through in this pair, and that’s the main focus longer-term. At this point, I look at pullbacks as an opportunity.

The British pound initially rallied against the Japanese yen during trading on Tuesday but has given back quite a bit of the gains. This does make a certain amount of sense because it has been more or less a risk-off type of environment. That to me doesn’t really matter, though, because I think that’s a temporary situation. The interest rate differential is still wide enough to drive a truck through, so I still prefer to own the British pound over the Japanese yen.

Furthermore, the bond market in Japan is all over the place, and I think that is a story that will continue to play out. While the interest rates in Japan have been climbing, it’s not for the right reasons, and therefore, I think the Japanese yen will continue to suffer.

Pullbacks and Support Levels

Pullbacks at this point in time will more likely than not look at the ¥210 level as a floor. After that, we have the 50-day EMA sitting just below the ¥209 level. To the upside, the ¥215 level could be your target, but we haven’t made it there yet. It looks like the area right around ¥214 continues to cause a little bit of a headache.

I think it makes a lot of sense to go sideways for a while and perhaps have more of a buy-on-the-dip type of behavior in this market. The Bank of England has a little bit of a negative, kind of dovish tone to it, but it’s not aggressively so, and therefore, the carry trade will be very much alive in this pair going forward for the foreseeable future.

Begin trading our daily forecasts and analysis. Here is a list of Forex brokers in Japan to work with.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.