GBP/JPY finds decent support near 208.00; remains below YTD top ahead of BoE’s Bailey

• GBP/JPY reverses a modest intraday dip, though it lacks follow-through amid mixed cues.
• Fiscal concerns and sluggish growth undermine the JPY, lending support to spot prices.
• The divergent BoJ-BoE policy expectations cap the cross ahead of Bailey’s testimony.

The GBP/JPY cross attracts some dip-buyers in the vicinity of the 208.00 mark on Thursday, though it lacks follow-through and sticks to a negative bias through the early European session. Spot prices currently trade around the 208.50-208.55 region and remain well within striking distance of the highest level since August 2008, touched earlier this week on Tuesday.

Investors remain concerned about Japan's deteriorating fiscal condition on the back of Prime Minister Sanae Takaichi's massive spending plan and sluggish economic growth. This, to a larger extent, overshadows hawkish Bank of Japan (BoJ) expectations, which, in turn, is seen as a key factor behind the Japanese Yen's (JPY) relative underperformance and acts as a tailwind for the GBP/JPY cross.

The downside for the JPY, however, seems limited amid expectations for an imminent BoJ rate hike as early as next week. The bets were lifted by BoJ Governor Kazuo Ueda's remarks earlier this week, saying that the likelihood of the central bank's baseline economic and price outlook materialising had been gradually increasing. This, along with a softer risk tone, could support the safe-haven JPY.

The British Pound (GBP), on the other hand, is pressured by a modest US Dollar (USD) recovery. This contributes to capping the upside for the GBP/JPY cross. Furthermore, the BoJ's hawkish outlook mark a significant divergence in comparison to bets that the Bank of England (BoE) will cut interest rates next week, which, in turn, warrants caution before placing fresh bullish bets around the cross.

Traders also seem reluctant and opt to wait for BoE Governor Andrew Bailey's testimony later today. The focus, however, will remain glued to the key central bank event risks next week – the BoE monetary policy update on Thursday and the crucial BoJ rate decision on Friday. This, in turn, will play a key role in influencing the GBP/JPY cross and determining the next leg of a directional move.