GBP/JPY flat lines above 198.00 as BoE-BoJ policy divergence caps gains ahead of UK PMIs

• GBP/JPY remains hesitant to build a modest Asian session uptick on Thursday.
• The divergent BoE-BoJ policy expectations act as a headwind for spot prices.
• Traders now look forward to the flash UK PMI prints for short-term impetus.

The GBP/JPY pair holds steady above the 198.00 mark during the Asian session on Thursday, though the lack of any meaningful buying warrants caution before positioning for an extension of the overnight bounce from a nearly two-week low.

Despite hot UK consumer inflation figures released on Wednesday, the British Pound (GBP) struggles to lure buyers as traders are still pricing in a 50-50 chance that the Bank of England (BoE) might cut interest rates by the end of this year. This marks a significant divergence in comparison to a relatively hawkish Bank of Japan (BoJ), which contributes to the Japanese Yen's (JPY) relative outperformance and acts as a headwind for the GBP/JPY cross.

In fact, the BoJ revised its inflation forecast at the end of the July meeting and reiterated that it will raise interest rates further if growth and inflation continue to advance in line with its estimates. Apart from this, the cautious market mood is seen as another factor undermining the safe-haven JPY. However, the uncertainty over the likely timing of the next BoJ rate hike holds back the JPY bulls from placing aggressive bets and supports the GBP/JPY cross.

Meanwhile, the S&P Global flash Japan Manufacturing PMI improved to 49.9 in August from the previous month's final reading of 48.9, though it remained in contraction territory for the second straight month. Traders now look forward to the release of the flash UK PMIs for some impetus. In the meantime, the fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming a near-term bottom for the GBP/JPY cross.