• GBP/JPY attracts fresh buyers following a weekly bearish gap opening to the 209.00 mark.
• Reduced bets for an immediate BoJ rate hike undermine the JPY and support spot prices.
• The divergent BoE-BoJ policy expectations and JPY intervention fears might cap the cross.

The GBP/JPY cross rebounds swiftly from the Asian session low, around the 209.00 mark, and climbs to a fresh daily high in the last hour, filling the weekly bearish gap opening. Spot prices currently trade around the 210.35-210.40 region, nearly unchanged for the day, and draw support from a broadly weaker Japanese Yen (JPY).

Data released last Friday showed that the core consumer inflation in Tokyo – Japan's capital city – fell below the Bank of Japan's (BoJ) 2% target for the first time since 2024. Adding to this, reports that Japan's Prime Minister Sanae Takaichi had expressed reservations about additional monetary tightening ‌during her meeting with the governor temper hopes for an immediate rate hike by the BoJ. This, in turn, undermines the JPY and assists the GBP/JPY cross to attract some dip-buyers at the start of a new week.

The British Pound (GBP), on the other hand, benefits from a modest US Dollar (USD) pullback from the highest level since January and turns out to be another factor acting as a tailwind for spot prices. Meanwhile, the Green Party's landmark victory in the Gorton and Denton by-election underscored the breakdown of Britain's two-party politics. Apart from this, the Bank of England (BoE) easing expectations might hold back the GBP bulls from placing aggressive bets and cap any further gains for the GBP/JPY cross.

BoE Governor Andrew Bailey said during his testimony before the Parliament’s Treasury Committee last week that there is scope for rate cuts amid expectations that inflation will return to the 2% target. In contrast, BoJ Governor Kazuo Ueda reiterated last Thursday that the basic stance is to continue raising rates if the likelihood of our economic and price forecasts materialising heightens. Adding to this, BoJ’s Himino said earlier today that policy should gradually move toward a neutral stance with moderate rate hikes.

This keeps alive hopes for further policy tightening by the BoJ, which, along with speculations that Japanese authorities would step in to stem any further weakness in the domestic currency, could limit deeper JPY losses. Apart from this, the global flight to safety, fueled by a dramatic escalation of geopolitical tensions in the Middle East, could support the safe-haven JPY and contribute to capping the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through buying before positioning for additional gains.