GBP/JPY. Analysis and Forecast

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The GBP/JPY pair remains above the psychological level of 200.00, attempting once again to break through 200.35, which it surpassed on Friday. On Thursday, the Bank of England will publish its monetary policy decision, and it appears the main rate will remain unchanged at 4%. In addition, the regulator is expected to maintain a cautious wait-and-see stance through the end of 2025, given the recent rise in inflation expectations. These factors continue to support the British pound, providing a tailwind for the GBP/JPY pair.

The Japanese yen, in contrast, continues to struggle to attract significant buyers amid expectations that domestic political turmoil may give the Bank of Japan additional reasons to delay rate hikes. This backdrop favors bulls in GBP/JPY. At the same time, most market participants lean toward the view that the Bank of Japan is still on course to gradually normalize its policy.

The recent U.S.–Japan agreement has removed a major source of uncertainty in relations between the two countries. In addition, revised Japanese GDP growth data for Q2, along with labor market tensions and the first increase in real incomes in seven months, confirm the possibility of another Bank of Japan rate hike later this year. This scenario stands in contrast to softer expectations from the Bank of England and may limit further GBP/JPY growth.

As a result, the market's main focus is on the outcome of the Bank of Japan's two-day meeting scheduled for Friday, where monetary policy directions will be reviewed. In addition, key U.K. labor market data due on Tuesday, as well as consumer inflation figures to be released on Wednesday, may influence pound quotes and further impact GBP/JPY dynamics. Nevertheless, ahead of these central bank events, market reaction is expected to remain cautious, given the risks.

From a technical standpoint, oscillators on the daily chart are positive, and the pair has broken above the psychological level of 200.00. The 9-day EMA is positioned above the 14-day EMA, with prices trading above both. This indicates that the path of least resistance for the pair is upward.

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