British Pound remains on the front foot amid BoJ-inspired Yen weakness

• GBP/JPY attracts buyers for the third day as the JPY underperforms due to the BoJ’s dovish hike.
• Intervention fears help limit JPY losses and cap the cross amid the divergent BoJ-BoE outlook.
• Some follow-through buying is needed to back the case for a further recovery from the YTD low.

The GBP/JPY cross scales higher for the third consecutive day – also marking the sixth day of a move up in the previous seven – and trades around the 210.75-210.80 region during the early European session on Tuesday. Spot prices, however, remain below last week's swing high, warranting some caution for bullish traders amid mixed fundamental cues.

The Japanese Yen (JPY) continues to underperform globally as the Bank of Japan's (BoJ) rate hike last week, to a 31-year high of 1.25%, was accompanied by a surprisingly dovish outlook. Moreover, the 7–2 vote split pointed to a divided board and signaled caution regarding rapid monetary tightening. This keeps JPY bulls on the back foot, which, in turn, is seen as a key factor lending some support to the GBP/JPY cross.

Nevertheless, the current market pricing still leans towards further BoJ policy normalization. This marks a significant divergence in comparison to the Bank of England's (BoE) cautious on-hold decision and gradual easing bias. The resultant narrowing rate spread between Japan and the UK reduces the attractiveness of the carry trades, which, along with intervention fears, limits JPY losses and caps the upside for the GBP/JPY cross.

In fact, Japanese officials reportedly conducted rate checks on Friday, which is seen as a precursor that authorities will step in to prop up the domestic currency. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out in the near term and positioning for an extension of the recent goodish recovery from the year-to-date low, set earlier this month.