GBP/JPY Capped by Intervention Risks Amid BoJ Dovish Decision

The British Pound (GBP) has strengthened against the Japanese Yen (JPY), but its upside seems capped amid intervention risks. The GBP/JPY cross saw fresh buyers at the start of the week, halting Friday's retracement slide from the 211.25-211.30 area, or a nearly two-week high.

Spot prices have held modest intraday gains through the first half of the European session and currently trade just below mid-210.00s, up 0.15% for the day. The Japanese Yen's relative underperformance is attributed to the Bank of Japan's (BoJ) surprisingly dovish decision last Friday.

Strategists at Brown Brothers Harriman note that the UK rates market remains aggressively priced, with the swaps curve still implying 'about 100bps of BOE rate hikes in the next twelve months to 4.75%.' However, they argue that 'the BOE may not need to tighten as much as markets expect,' citing the UK economy operating below capacity and the current Bank Rate at 3.75% being near the top of the BOE's estimated neutral range.

The BoJ conducted a rate check on Friday, reviving expectations for another intervention in the currency market, which might further hold back traders from placing aggressive bearish bets on the JPY.