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- GBP/JPY consolidates in a range during the Asian session on Tuesday amid mixed fundamental cues.
- The BoJ rate-hike uncertainty and a positive risk tone undermine the JPY, lending support to the pair.
- The divergent BoJ-BoE policy expectations cap the upside for spot prices ahead of the flash UK PMIs.
The GBP/JPY cross struggles to capitalize on the previous day’s bounce from the 199.00 neighborhood, or a nearly two-week low, and oscillates in a narrow band during the Asian session on Tuesday. Spot prices currently trade just above mid-199.00s as traders look forward to the release of the flash UK PMIs for some impetus.
In the meantime, the uncertainty over the likely timing and the pace of interest rate hikes by the Bank of Japan (BoJ) continues to act as a headwind for the Japanese Yen (JPY), which, in turn, offers some support to the GBP/JPY cross. Investors seem worried that domestic political uncertainty and concerns about economic headwinds stemming from US tariffs could give the BoJ more reasons to further delay an increase in borrowing costs. Apart from this, a generally positive risk tone is seen as another factor that undermines the safe-haven JPY.
That said, hawkish dissents to the BoJ’s on-hold decision last week could be seen as a prelude to impending rate hikes. Moreover, traders have been pricing in the possibility of a 25 basis points (bps) rate hike in October. This marks a significant divergence in comparison to the Bank of England’s (BoE) dovish signal that there will be further reductions in the bank rate, which could lead to the British Pound’s (GBP) relative underperformance against the lower-yielding JPY. Apart from this, geopolitical risk might contribute to capping the GBP/JPY cross.
Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent corrective pullback from the 201.25 region, or the highest level since July 2024, touched last week, has run its course, and placing fresh bullish bets. Meanwhile, the flash UK PMIs could provide a fresh insight into the UK economic health, which, in turn, could influence the GBP and allow traders to grab short-term opportunities around the GBP/JPY cross.
