- GBP/JPY attracts sellers for the second straight day as safe-haven demand boosts the JPY.
- The divergent BoJ-BoE policy expectations exert additional downward pressure on spot prices
- A bearish USD lends some support to the GBP and might help limit further losses for the cross.
The GBP/JPY cross meets with fresh supply following an Asian session uptick to the 188.75 region and turns negative for the second consecutive day on Tuesday. Spot prices slide back below the 188.00 mark, hitting a three-day low in the last hour, and seem vulnerable to weaken further amid sustained buying around the Japanese Yen (JPY).
Investors remained on edge amid persistent uncertainties surrounding US President Donald Trump’s steep tariffs and worries that the erratic trade war would push the global economy into a recession. Adding to this hopes for a US-Japan trade deal and bets that the Bank of Japan (BoJ) will continue raising interest rates underpin the safe-haven JPY, which, in turn, is seen exerting downward pressure on the GBP/JPY cross.
The BoJ is reportedly planning to signal next week that there is almost no need to change its basic stance on raising interest rates as the potential impact of increased US tariffs will not disrupt the ongoing cycle of wage growth and inflation. This comes on top of government data released last Friday, which showed that Japan’s core Consumer Price Index (CPI) accelerated in March and pointed to broadening inflation in Japan.
In contrast, traders have placed a large bet on the Bank of England (BoE) lowering interest rates amid growing concerns about the economic fallout from Trump’s trade tariffs. This marks a big divergence in comparison to hawkish BoJ expectations, which supports prospects for further depreciation for the GBP/JPY cross. However, sustained USD selling lends support to the British Pound (GBP) and could help limit deeper losses.
