• GBP/JPY struggles to capitalize on its strong weekly gains recorded over the past two days.
• Dovish repricing of the BoE rate expectations and the UK political crisis undermine the GBP.
• The JPY bears turn cautious amid intervention risks, which contribute to capping spot prices.

The GBP/JPY cross is seen consolidating its strong gains registered over the past two days and oscillating in a range through the early European session on Wednesday. Spot prices, however, remain within striking distance of a two-month high, touched on Tuesday, and currently trade just below mid-215.00s.

A dovish repricing of Bank of England (BoE) interest rate expectations seems to undermine the British Pound (GBP). Furthermore, the UK political instability and a firmer US Dollar (USD) exert some downward pressure on the GBP, which, in turn, is seen as a key factor acting as a headwind for the GBP/JPY cross. Adding to this, expectations that Japanese authorities will step in again to prop up the domestic currency contribute to capping the upside for spot prices.

Japan's Finance Minister Satsuki Katayama reiterated on Tuesday that the government would respond appropriately to excessive currency moves at any time as needed. Moreover, Atsushi Mimura – Japan’s Vice Finance Minister for International Affairs and top foreign exchange official – said that intervention to prop up the Japanese Yen (JPY) two months ago was successful, and some US authorities voiced support. This, however, does little to impress the JPY bulls.

The wide rate differential between Japan and other major economies, including the UK, keeps the JPY carry trade in play, which continues to lend support to the GBP/JPY cross. The Bank of Japan (BoJ) raised its benchmark policy rates to 1% – the highest since 1995 – in June, while the BoE base rate is at 3.75%, leaving a gap of around 275 basis points (bps). This, in turn, favors bulls and suggests that the path of least resistance for the GBP/JPY cross it to the upside.

Traders, however, seem hesitant to place aggressive bets and opt to wait for the BoE Governor Andrew Bailey's speech at the European Central Bank (ECB) Forum in Sintra. Investors will look for more cues about the UK central bank's policy outlook, which, in turn, will influence the GBP price dynamics and provide some meaningful impetus to the GBP/JPY cross.