GBP Extends Gains Against JPY as BoJ Dovish Hike Weighs on Yen
The British Pound (GBP) has extended its gains against the Japanese Yen (JPY), reaching new highs for the third consecutive day. The GBP/JPY cross is currently trading around the 210.75-210.80 region, with prices staying below last week's swing high. This cautious approach by bullish traders is warranted due to mixed fundamental cues.
The JPY continues to underperform globally, following the Bank of Japan's (BoJ) rate hike last week to a 31-year high of 1.25%. However, this decision was accompanied by a surprisingly dovish outlook and a divided board, signaling caution regarding rapid monetary tightening. As a result, JPY bulls are on the back foot.
The current market pricing still leans towards further BoJ policy normalization, which diverges from the Bank of England's (BoE) cautious stance. The narrowing rate spread between Japan and the UK reduces the attractiveness of carry trades, limiting JPY losses and capping the upside for the GBP/JPY cross.
Japanese officials have reportedly conducted rate checks, indicating a potential intervention to prop up the domestic currency. It would be prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out in the near term.