3 October 2023, 12:41

• GBP/JPY eyes more downside below 180.50 as a BoJ’s intervention in the FX domain cannot be ruled out.
• The BoJ will continue with its expansionary monetary policy to keep inflation above 2% through wage growth.
• BoJ Mann favored for more interest rate hikes as more inflation shocks are imminent.

The GBP/JPY pair attracts bids near 180.50 while the broader bias remains bearish as a stealth intervention by the Bank of Japan (BoJ) in the FX domain remains inevitable. The Japanese yen has been weakening as the BoJ is consistently favoring an expansionary monetary policy to ensure a sustainable inflation above the 2% target.

The Japanese Yen is inch far from the crucial 150.00 level against the US Dollar and authority has already warned that they are closely watching FX moves with a high sense of urgency. The BoJ is expected to continue with an easy monetary policy to keep inflation above target through wage growth and not external factors. Therefore, a stealth intervention is the last resort for BoJ policymakers.

While the Pound Sterling weakens due to economic turmoil as United Kingdom’s Manufacturing PMI continues to remain in the contraction territory. The S&P Global reported factory activities in September at 44.3, marginally higher than expectations and the former release of 44.2. The economic data remains below the 50.0 threshold for the 14th straight period as firms cut on inventory and laborforce due to weak domestic and overseas demand.

The expectation for a slowdown in the UK economy elevated on Monday after Bank of England (BoE) policymaker Katherine Mann delivered a hawkish interest rate outlook. BoE Mann said that interest rates have reached near restrictive level but more rate hikes are well-need the more inflation shocks cannot be ruled.

The BoE unexpectedly paused its policy-tightening cycle on September 21, kept interest rates unchanged at 5.25% while investors anticipated an interest rate hike by 25 basis points (bps).