British Pound jumps to two-week top as JPY declines after BoJ's rate-hike to 31-year high

• GBP/JPY builds on its intraday move up as the JPY weakens on fading hopes of aggressive BoJ tightening.
• The BoJ raises interest rates to a 31-year high, though easing inflation in Japan tempers rate hike bets.
• Traders now look to the post-meeting press conference for more cues about the BoJ’s policy path.

The GBP/JPY cross attracts fresh buyers during the Asian session on Friday and jumps to a nearly two-week top, beyond 209.50, after the Bank of Japan (BoJ) announced its policy decision.

As was widely expected, the Japanese central bank raised the short-term interest rate by 25 basis points (bps) to 1.25%, or a 31-year high, at the conclusion of the September policy meeting. In the accompanying policy statement, the BoJ reiterated that it will continue raising rates in response to developments in activity, prices and financial conditions. However, the 7-2 vote split pointed to a divided board and tempered expectations for a more aggressive tightening cycle against the backdrop of data showing that inflation in Japan eased slightly in August.

In fact, Japan's headline Consumer Price Index (CPI) held steady at 1.9% YoY, while the core inflation unexpectedly fell to 1.7% in August. Adding to this, the core CPI, which excludes both fresh food and energy prices, remained below the central bank's 2% target, which is seen as undermining the Japanese Yen (JPY). The British Pound (GBP), on the other hand, benefits from subdued US Dollar (USD) price action and provides an additional boost to the GBP/JPY cross. That said, the Bank of England's (BoE) dovish on-hold decision on Thursday might cap the GBP.

Furthermore, JPY bears might refrain from placing aggressive bets and opt to wait for the post-meeting press conference, where comments from BoJ Governor Kazuo Ueda will be scrutinized for cues about the precise timing and pace of future tightening. Hence, it will be prudent to wait for strong follow-through buying before positioning for an extension of the GBP/JPY pair's recent recovery from the 207.00 neighborhood, or the year-to-date low, touched last week.