GBP/JPY has rebounded above the mid-198.00s on Friday, snapping a four-day losing streak after touching a nearly one-month low near 197.50-197.45 during the previous session. The upside momentum is supported by a broadly weaker Japanese Yen (JPY) and a positive risk-on environment in global markets.
JPY under pressure amid political uncertainty
Japan’s Unemployment Rate rose to 2.6% in August, higher than expected, weakening the JPY’s safe-haven appeal. The upcoming Liberal Democratic Party (LDP) leadership election on Saturday, October 4, is also keeping traders cautious. A new Prime Minister could shape Japan’s fiscal policy and influence the Bank of Japan’s (BoJ) stance, with traders largely pricing in Koizumi’s victory. A surprise win by Takaichi could trigger a stock market rally, according to Kazuaki Shimada, Chief Strategist at IwaiCosmo Securities.
BoJ Governor Kazuo Ueda reiterated the need for an accommodative monetary policy to offset economic uncertainties but maintained that interest rates would rise if economic and price targets are met, keeping hopes alive for a potential rate hike later this month.
GBP faces cautious sentiment
While the JPY drives GBP/JPY gains, concerns over the UK’s fiscal outlook ahead of the November Autumn budget could limit bullish bets on the British Pound. Traders are also eyeing the release of the final UK Services PMI and a speech by Bank of England (BoE) Governor Andrew Bailey, which could provide near-term trading opportunities.
Overall, GBP/JPY remains on track for weekly losses, and a sustained recovery will depend on follow-through buying and broader market sentiment.
