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GBP/JPY falls to a three-week low as yen strengthens
Traders are pricing a high probability of a 25 bps BoJ hike at the September 17 to 18 meeting, with potential follow up in December.
The GBP/JPY cross remained under heavy selling pressure for a second straight day, sliding to a three and a half week low around 212.75 to 212.70 during the Asian session, according to FXStreet.
FXStreet said a broadly firmer Japanese yen is pressuring the pair, with traders watching the 200-day Simple Moving Average (SMA) as a key technical level and speculating that authorities may have run a rate check, which could point to possible intervention.
FXStreet also linked the yen strength to a more hawkish repricing of Bank of Japan rate hike expectations. It said traders are now assigning a high probability to a 25 bps increase at the next BoJ policy meeting on September 17 to 18, plus a potential follow up in December, after comments from BoJ board member Hajime Takata and remarks from Governor Kazuo Ueda about focusing more on upside inflation risks.
The outlet noted that borrowing costs in Japan remain significantly lower than in other major economies, which should help keep the yen carry trade active, while worsening Japanese fiscal conditions could restrain yen bulls. It also said a weak US dollar supports the British pound, limiting some downside for the GBP/JPY cross.