GBP/JPY retreats further from YTD peak, dives to 199.50 amid post-BoJ JPY strength

• GBP/JPY attracts heavy selling on Friday as the JPY rallies after BoJ’s hawkish on-hold decision.
• The BoE’s dovish outlook also contributes to the GBP’s underperformance against a firmer JPY.
• Traders now look to BoJ Governor Ueda's comments at the press conference for a fresh impetus.

The GBP/JPY cross extends the previous day's retracement slide from the 201.25 area, or the highest level since July 2024, and attracts heavy selling during the session on Friday. The downward trajectory drags spot prices to the lower end of the weekly range, around the 199.50 area, and is exclusively sponsored by a strong pickup in demand for the Japanese Yen (JPY).

As was anticipated, the Bank of Japan (BoJ) decided to leave the short-term interest rate target unchanged in the range of 0.4%- 0.5% at the conclusion of a two-day monetary policy review meeting this Friday. However, there were two dissents to the on-hold decision, both wanting a rate hike, which, in turn, provides a goodish intraday boost to the JPY and exerts downward pressure on the GBP/JPY cross.

Furthermore, investors have been pricing in the possibility of a 25-basis-point (bps) BoJ rate hike move in October amid signs of economic resilience. This marks a big divergence in comparison to the Bank of England's (BoE) dovish signal that there will be further reductions in the bank rate, which contributes to the JPY's outperformance against its British counterpart and weighs on the GBP/JPY cross.

The JPY bulls, however, might refrain from placing aggressive bets amid concerns that domestic political uncertainty could give BoJ reasons to further delay rate hikes. Adding to this, data released earlier today showed that Japan's core consumer prices rose at the slowest pace in nine months during August. Hence, BoJ Governor Kazuo Ueda's remarks should provide a fresh impetus to the GBP/JPY cross.