British Pound dives to six-month low vs rallying Yen amid bets for faster BoJ rate hikes

• GBP/JPY comes under renewed selling pressure on Monday amid a broad-based JPY rally.
• A more hawkish BoJ repricing and a suspected intervention continue to underpin the JPY.
• Japan’s fiscal concerns and a modest GBP strength could help limit losses for spot prices.

The GBP/JPY cross meets with heavy supply during the early part of the European session on Monday and weakens below the 209.00 mark, hitting its lowest level since February 24 amid a broad-based rally in the Japanese Yen (JPY).

Following a brief pause on Friday, the JPY regains strong positive traction at the start of a new week amid aggressive repricing toward a faster pace of interest rate hikes by the Bank of Japan (BoJ). In fact, traders now seem to have fully priced in a 25 basis point (bps) rate hike at the next BoJ meeting on September 17–18. Moreover, some analysts see the risk of a jumbo hike to anchor rising inflation expectations, cap long-end yields and ultimately support the JPY.

Apart from this, renewed speculation of another currency market intervention by Japanese authorities further boosts the JPY and exerts heavy downward pressure on the GBP/JPY cross. Meanwhile, the latest leg of a steep decline witnessed over the past hour or so could further be attributed to technical selling following a decisive break and acceptance below the 210.00 psychological mark. However, concerns over Japan’s fiscal outlook might keep a lid on further JPY gains.

Furthermore, a modest uptick in the British Pound (GBP), bolstered by a broadly weaker US Dollar (USD), should contribute to limiting the downside for the GBP/JPY cross. Nevertheless, the aforementioned fundamental backdrop, along with a technical breakdown, suggests that the path of least resistance for spot prices remains to the downside. Hence, any attempted recovery move might now be seen as a selling opportunity and is more likely to be limited.