GBP/JPY trades near two-week high in anticipation of BoJ meeting

Key points

The Japanese Yen remained under pressure against major peers, including the British Pound, on Tuesday, as market focus sets on the Bank of Japan’s policy meeting later in the week.

The BoJ is largely expected to keep its short-term interest rate without change at -0.10% this month.

The Yen retreated more than 1.1% against the Sterling on Friday on the back of media reports that the Bank of Japan was leaning towards maintaining its yield curve control policy intact.

“(BOJ) Governor Ueda has held his cards close to his chest, seemingly unpersuaded by the recent run up in Japanese prices and especially workers’ wages, and he has dropped few hints about an impending YCC tweak,” Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management, was quoted as saying by Reuters.

“However, we feel the time is ripe to undertake a YCC tweak… A YCC tweak is not full-scale pivot to policy tightening, but it sets the stage for reduced policy divergence. As such it would result in an abatement of pressure on the yen.”

Meanwhile, on the macro data front, a preliminary PMI survey showed yesterday that activity in the United Kingdom’s private sector had expanded at the slowest pace in six months in July.

Activity growth in UK’s services sector decelerated for the third month in a row, while manufacturing output shrank the most since December 2022, data showed.

The flash S&P Global/CIPS Composite PMI came in at a reading of 50.7 in July, down from a final 52.8 in June.

As of 7:31 GMT on Tuesday GBP/JPY was edging up 0.23% to trade at 181.781. Last week, the minor Forex pair went up as high as 182.528. The latter has been the pair’s strongest level since July 10th (183.220).