GBP/JPY Pair Plummets 3.3% Amid BoJ Hawkish Shift

The British Pound (GBP) has resumed its bearish trend against the Japanese Yen (JPY), dropping by a significant 3.3% in just four trading days. This decline is largely due to comments from Japanese officials hinting at a more aggressive monetary tightening cycle by the Bank of Japan (BoJ). Takuji Aida, economic adviser to PM Takaichi and a vocal opponent of BoJ rate hikes, now expects the bank to raise rates at its September 17-18 meeting, followed by another hike in January next year.

Analysts at Danske Bank highlight that while this shift in expectations is significant, Aida also warns that a faster tightening pace could weigh on the economy. This delicate balance has markets pricing in a more hawkish BoJ path, putting pressure on the GBP/JPY pair. Currently, the pair trades at 209.38, just above the neckline of a large Head & Shoulders (H&S) pattern.

The technical analysis suggests that a confirmation below the 209.20 level would expose the February 27 low at 207.30. However, the downtrend appears overextended, which may lead to some correction. If this happens, previous support areas around 210.45 and 211.50 could test bulls.