GBP/JPY Holds Near 212.53 as Yen's Downside Risks Linger

The GBP/JPY currency pair continues to trade in a narrow range, but the Japanese Yen's recent losses may be short-lived. The Yen has been on the back foot for three consecutive days after reversing part of the intervention-driven rally that briefly sent GBP/JPY below 210.00 earlier this week.

Rabobank's Bas van Geffen notes that Japan's government is planning tax cuts and handouts, which could add to the country's already significant budget deficit. The cost of these measures will be around JPY 4 trillion annually, or about 0.6% of GDP.

The prime minister has attempted to reassure investors that these measures are temporary, but Finance Minister Katayama has pledged not to fund them through Japan's deficit. Rabobank argues that the tax cuts do not lead to investments that could structurally improve Japan's economic growth, which is necessary for the Yen to gain support.

GBP/JPY is currently trading near 212.53, finding support at the 200-day Simple Moving Average (SMA). The pair holds below the 100-day, 50-day, and 21-day SMAs, keeping the near-term bias bearish and structurally capping the pair.