• GBP/JPY reverses a modest Asian session dip as a modest USD weakness benefits the GBP.
• Expectations of a BoJ rate hike and risk aversion support the JPY, potentially capping the cross.
• The divergent BoE-BoJ policy outlooks also warrant caution for aggressive bullish traders.

The GBP/JPY cross attracts some buyers near the 211.60 area, or a four-day low touched during the Asian session on Friday, and climbs to the top end of the intraday range. Spot prices currently trade just below mid-212.00s, and, for now, seem to have stalled this week's modest pullback from the 215.00 mark, or the highest level since July 2008.

As investors digest the Bank of England's (BoE) policy update on Thursday, the British Pound (GBP) benefits from the emergence of some US Dollar (USD) selling and turns out to be a key factor acting as a tailwind for the GBP/JPY cross. However, the BoE's dovish outlook might hold back the GBP bulls from placing aggressive bets and cap the upside for the currency pair amid a broadly firmer Japanese Yen (JPY).

The BoE signaled a future cut if inflation continued to slow following the 5-4 MPC vote split decision to leave rates unchanged at the end of the February policy meeting. Moreover, BoE Governor Andrew Bailey, addressing reporters during the post-meeting press conference, said that inflation is set to reach the target level sooner than expected. Traders are now pricing in a 50 basis points (bps) rate cut by the BoE this year.

This marks a significant divergence in comparison to the growing acceptance that the Bank of Japan (BoJ) will stick to its policy normalization path. Data released earlier today showed Japan’s Household Spending fell sharply in December, underscoring the drag from higher prices on consumer activity and reinforcing bets for an early BoJ rate hike. This provides a modest boost to the JPY and might cap the GBP/JPY cross.

Furthermore, the possibility of a coordinated Japan-US intervention supports the JPY. That said, concerns over Japan's fiscal situation and political uncertainty might cap the JPY ahead of the snap lower house election on February 8. Nevertheless, the GBP/JPY cross remains on track to register modest weekly gains, though the mixed fundamental backdrop warrants some caution for aggressive bullish traders.