July 15 (Reuters) - Yen-funded summer carry trades are likely to focus on NZD/JPY and GBP/JPY this year. Given wider uncertainty around the U.S. dollar, moves into these two crosses should appeal on favourable interest rate differentials alone. NZD/JPY has been a star performer, rallying from the 91.00 area on June 24 to a high of 94.44 Tuesday. It has broken above its daily Ichimoku cloud between 93.03-90 and looks to be heading for a possible test of the May 29-June 1 double-top at 95.41-42. The two-year interest rate differential between Japanese and New Zealand government bonds is roughly 217 basis points and five-year paper is around 212 bps. These spreads could widen further with the Reserve Bank of New Zealand expected to raise rates by another 50 bps by end-2026 and the Bank of Japan seen hiking 25 bps at most in September or October , . GBP/JPY has been ratcheting higher for even longer. From a trough of 184.31 on April 9, 2025, it traded to 218.00 on July 9 on relatively wide JGB-gilt differentials and positive sentiment around likely new UK Prime Minister Andy Burnham . GBP/JPY could well test higher with the July 9 high its best since 222.73 in January 2008. The rate differential in JGB and gilt two-year maturities is around 299 bps, in five-year paper around 263 bps and in ten-year paper around 232 bps. Meanwhile, JGB-U.S. Treasury differentials are around 286 bps in two-year paper, 244 bps in fives and around 192 bps in tens. These are still attractive spreads but the market is already very long U.S. dollars, and USD/JPY remains under almost constant threat of Japanese FX intervention.

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(Haruya Ida is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai)