• GBP/JPY finds some support near mid-216.00s, though it lacks follow-through amid mixed cues.
• Economic concerns due to Hormuz risks and the wide interest rate gap prompt fresh JPY selling.
• Receding UK political uncertainty contributes to the GBP’s outperformance against a weaker JPY.

The GBP/JPY cross rebounds a few pips following an Asian session dip to mid-216.00s on Monday, stalling its modest pullback from the highest level since January 2008, touched last week. Spot prices, however, lack follow-through and remain below the 217.00 mark, warranting caution for aggressive bulls.

The Japanese Yen (JPY) attracts fresh sellers as energy supply disruptions in the Strait of Hormuz fuel economic concerns amid Japan’s heavy reliance on imported oil from the Middle East. Adding to this, a persistently wide interest rate gap between Japan and other major economies, including the UK, keeps the so-called JPY carry trade active and acts as a tailwind for the GBP/JPY cross.

In the latest developments, the US unleashed a major round of strikes on Iran, while Tehran responded with missile attacks on American military bases in the Gulf. Moreover, Iran’s Islamic Revolutionary Guard Corps (IRGC) fired at another commercial vessel in the Strait of Hormuz and announced the closure of the critical waterway, prompting traders to price in a geopolitical risk premium.

Meanwhile, the Bank of Japan (BoJ) raised its policy rate in June to 1% or, the highest level since 1995, and the Bank of England's (BoE) base rate is at 3.75%, leaving a rate differential of around 275 basis points (bps). Moreover, easing UK political uncertainty and hawkish BoE bets contribute to the British Pound's (GBP) outperformance against its Japanese counterpart, supporting the GBP/JPY cross.

In fact, former Greater Manchester mayor Andy Burnham secured the support of the vast majority of Labour MPs to replace Keir Starmer and become Britain's next Prime Minister. Furthermore, traders see a greater chance of at least one 25-basis-point (bps) rate hike from the BoE by the year-end. However, intervention risks and the hawkish BoJ could limit JPY losses and cap the GBP/JPY cross.

Traders remain on high alert amid speculations that Japanese authorities will step in again to prop up the domestic currency. Moreover, three sources said that the BoJ may revise up its economic growth forecast for fiscal 2026 and keep its focus on the risk of an inflation overshoot at the upcoming policy meeting later this month. This could further support the JPY and keep a lid on the GBP/JPY cross.