- GBP/JPY fell for the second day in a row, helped by the stronger yen.
- Bets that the Bank of England will cut interest rates faster will weaken the pound and add weight.
- Uncertainty over the Bank of Japan could weaken the yen and help reduce price losses.
The GBP/JPY cross started the new week on a weak note, retreating from its highest level since late July (around 196.00 on Friday). However, the spot price remains consistent with the experience of the last two weeks and is currently trading around 194.70, down 0.20% on the day. The Japanese yen (JPY) has maintained its relative outperformance for the second day in a row due to the resurgence of fear, which was seen as the main factor weighing on the GBP/JPY transition. Indeed, Japan’s chief economist Atsushi Mimura warned against market speculation on Friday, saying authorities were closely monitoring economic outcomes. In addition, Vice President Kazuhiko Aoki noted that it was important for income to return to a stable position reflecting the job base.
At the same time, the UK consumer price index (CPI) fell to its lowest level since April 2021, falling short of the Bank of England’s (BoE) 2% target and raising expectations for a 25 basis point (bps) rate cut. (Nov. 7) bet. In addition, the forex market is pricing in the possibility of another Bank of England rate cut in December, weighing on the pound and further weighing on the GBP/JPY cross. However, uncertainty over the Bank of Japan’s (BoJ) rate hike plans is expected to stabilise the yen and provide support for the crossover.
BoJ Governor Kazuo Ueda said on Friday that the central bank should monitor the impact of economic instability and not risk the chances of business abroad. This comes as Japanese Prime Minister Shigeru Ishiba is prepared to oppose further rate hikes and the Bank of Japan has said it is in no rush to tighten policy further ahead of the Oct. 27 election. Additionally, risk aversion should limit risk aversion in the yen and limit the GBP/JPY cross loss, while caution should be exercised before placing aggressive bearish bets on relevant macro data.