• GBP/JPY attracts heavy selling as intervention warning prompts some JPY short-covering.
• Economic concerns stemming from the Iran war might cap any meaningful JPY move up.
• The BoE’s hawkish outlook could underpin the GBP and could limit losses for spot prices.

The GBP/JPY cross turns lower for the third straight day following a modest Asian session uptick to the 213.00 neighborhood on Monday and drops to a one-week low in the last hour. Spot prices currently trade just below the 212.00 mark, down 0.30% for the day, and seem vulnerable amid a broadly firmer Japanese Yen (JPY).

Japan's Vice Finance Minister for International Affairs, Atsushi Mimura, issued the strongest signal yet that authorities are ready to take decisive action if speculative moves in the in currency markets continue. The remarks came after the JPY fell below the key 160 psychological mark against the US Dollar (USD), a key threshold level at which authorities last stepped in to support the currency. Adding to this, Bank of Japan (BoJ) Governor Kazuo Ueda said that the central bank will closely watch FX moves, prompting some short-covering around the JPY and exerting pressure on the GBP/JPY cross.

Meanwhile, investors remain worried that Japan’s economy will come under substantial strains in the foreseeable future in the wake of the ongoing Iran war. Furthermore, supply disruptions caused by the effective closure of the Strait of Hormuz could worsen Japan’s trade balance and rekindle inflationary pressures, creating a stagflationary environment and complicating the BoJ's policy normalization path. This, in turn, could keep a lid on any meaningful JPY gains, which, along with the Bank of England's (BoE) hawkish stance, could support the British Pound (GBP) and the GBP/JPY cross.

In fact, the BoE signaled earlier this month a potential interest rate hike as early as April as elevated energy prices continue to fuel inflation fears. Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have topped out in the near term and positioning for deeper losses. From a technical perspective, the recent repeated failures near the 213.30-213.35 horizontal barrier constitute the formation of a double-top pattern, warranting some caution for bulls, suggesting that the GBP/JPY cross is likely to remain confined in a range held over the past three weeks or so.