• GBP/JPY rebounds from the vicinity of the 100-day SMA on Monday, albeit it lacks follow-through.
• Easing political risks and the BoE’s hawkish signal lend support to the GBP and the cross.
• Intervention fears keep the JPY bears on the defensive and cap the upside for spot prices.

The GBP/JPY cross attracts fresh buyers in the vicinity of the 100-day Simple Moving Average (SMA) support and fills a modest weekly bearish gap opening on Monday. Spot prices, however, lack follow-through and currently trade just below mid-213.00s during the early European session.

The British Pound (GBP) is underpinned by easing concerns over Prime Minister Keir Starmer’s position, especially after his Labour Party's heavy losses in English local elections and parliamentary votes in Scotland and Wales. Furthermore, the Bank of England's (BoE) signal that interest rate hikes could be appropriate if inflation remains persistent turned out to be another factor supporting the GBP and the GBP/JPY cross.

Meanwhile, the Japanese Yen's (JPY) underperformance could be attributed to economic risks stemming from renewed US-Iran tensions and the continued disruption to energy supplies from the Strait of Hormuz. However, speculations that Japanese officials might step in again to prop up the domestic currency hold back the JPY bears from placing aggressive bets and keep a lid on any meaningful upside for the GBP/JPY cross.

Reports last week showed that officials intervened in the FX market during holidays in early May, after having conducted JPY buying operations on April 30. Moreover, Japan's top currency diplomat, Atsushi Mimura, had said that Japan faces no constraints on how often it can intervene in currency markets and is in daily contact with US authorities. This, along with the hawkish Bank of Japan (BoJ), warrants caution for the GBP/JPY bulls.