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- GBP/JPY retreats sharply from a nearly three-week high amid a broadly stronger JPY.
- Comments from Japan’s Economics Minister fuel intervention fears and boost the JPY.
- The divergent BoJ-BoE policy expectations back the case for further intraday losses.
The GBP/JPY cross attracts some selling during the Asian session on Tuesday and for now, seems to have snapped a three-day winning streak to the 204.25 region, or a nearly three-week high touched the previous day. Spot prices slide below the 203.00 mark in the last hour and seem vulnerable amid a goodish pickup in demand for the Japanese Yen (JPY).
Japan’s Economic Minister Minoru Kiuchi said that it is important for foreign exchange (FX) moves to reflect fundamentals and be stable, adding that he will scrutinize its impact on Japan’s economy. This fueled speculations about a possible government intervention to stem further JPY weakness. This, along with some repositioning trade ahead of this week’s Bank of Japan (BoJ) policy meeting, prompts the JPY bears to lighten their bets and turns out to be a key factor exerting downward pressure on the GBP/JPY cross.
The BoJ is scheduled to announce its decision on Thursday and is anticipated to maintain the status quo amid expectations of aggressive fiscal spending under Japan’s new Prime Minister Sanae Takaichi. That said, data released on Monday showed that Japan’s service-sector inflation rose for the second consecutive month in September. Moreover, consumer inflation in Japan has exceeded the BoJ’s 2% target for well over three years. This, in turn, backs the case for an imminent rate hike in December or early next year.
A relatively hawkish BoJ outlook marks a significant divergence in comparison to expectations for further easing by the Bank of England (BoE). This, along with worries about the UK’s fiscal outlook ahead of the Autumn budget in November, continues to undermine the British Pound (GBP) and backs the case for a further depreciating move for the GBP/JPY cross. Hence, some follow-through weakness towards testing the 202.45 intermediate support, en route to sub-202.00 levels, now looks like a distinct possibility.
