British Pound moves away from YTD low as Yen consolidates hawkish BoJ-inspired rally

The GBP/JPY cross gains some positive traction on Thursday and moves away from the year-to-date low, around the 207.00 neighborhood, touched earlier this week. Spot prices stick to modest gains above the 208.00 mark through the early European session, though the uptick lacks bullish conviction.

UK finance minister John Healey's optimistic growth agenda and commitment to fiscal discipline offer some support to the British Pound (GBP). The Japanese Yen (JPY), on the other hand, pauses for a breather following the recent blowout rally over the past week or so. This, in turn, acts as a tailwind for the GBP/JPY cross. The near-term bias, however, seems tilted firmly in favor of JPY bulls amid an aggressive repricing for a more hawkish Bank of Japan (BoJ), warranting caution before positioning for any meaningful appreciating move for the currency pair.

Traders now seem to have fully priced in a 25-basis-point (bps) BoJ rate hike at its upcoming September 17–18 policy meeting and are assigning a high probability of a follow-up move in December. The bets were reaffirmed by BoJ board member Kazuyuki Masu's hawkish comments earlier today, saying that underlying inflation is gradually approaching 2% and the policy rate is still below our estimated range for a neutral rate. Moreover, hawkish BoJ members – Hajime Takata and Naoki Tamura – recently pushed for faster and more nimble rate hikes to counter inflation.

Adding to this, a combination of revised economic growth and strong wage gains bolstered the central bank’s normalization path. This might continue to underpin the JPY and cap the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom and positioning for any further gains. The market focus now shifts to the release of the monthly UK GDP report on Friday, which will influence the GBP price dynamics and provide some meaningful impetus to the currency pair. Moreover, prominent hawkish members – Hajime Takata and Naoki Tamura – recently pushed for faster and more nimble rate hikes to counter rising inflation.