GBP/JPY retreats further from YTD peak, slides to mid-199.00s amid notable JPY demand

• GBP/JPY drifts lower as firming BoJ rate hike expectations continue to boost the JPY.
• A weaker USD and upbeat data underpin the GBP and also lend support to the cross.
• Fiscal concerns might cap further GBP upside and cap any attempted recovery move.

The GBP/JPY cross attracts some follow-through sellers during the Asian session on Tuesday and moves further away from its highest level since July 2024, around the 200.35 region touched the previous day. The intraday slide is sponsored by a broadly firmer Japanese Yen (JPY) and drags spot prices to mid-199.00s in the last hour.

The initial market reaction to news that Japan's Prime Minister Shigeru Ishiba will step down fades rather quickly amid firming expectations that the Bank of Japan (BoJ) will stick to its policy normalization path. The bets were reaffirmed by an upward revision of Japan's Q2 GDP growth figures on Monday. Moreover, a rise in Japan's household spending and positive real wages keep hopes alive for an imminent BoJ rate hike by the year-end, which boosts the JPY and weighs on the GBP/JPY cross.

The British Pound (GBP), on the other hand, benefits from the prevalent selling bias surrounding the US Dollar (USD). Adding to this, the British Retail Consortium (BRC) reported earlier today that the Like-For-Like Retail Sales rose 2.9% year-on-year in August, beating July’s 1.8% gain and market forecasts of 2%. This also marks the strongest growth in four months, which, along with the Bank of England's (BoE) cautious path of interest rate cuts, underpins the GBP and could limit losses for the GBP/JPY cross.

That said, the fiscal uncertainty ahead of the Autumn Budget in November might hold back traders from placing aggressive bullish bets around the Sterling Pound and cap any intraday move up. Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that the GBP/JPY cross has topped out in the near-term and positioning for any meaningful corrective decline.