GBP/JPY trades with negative bias near weekly low, manages to hold above 184.00 mark

• GBP/JPY remains depressed for the second straight day, albeit lacks follow-through selling.
• A modest pickup in demand for the safe-haven JPY exerts downward pressure on the cross.
• The BoJ-BoE policy divergence warrants caution before positioning for any further losses.

The GBP/JPY cross trades with a mild negative bias for the second successive day on Friday and languishes near the lower end of its weekly range through the Asian session. Spot prices, however, manage to hold above the 184.00 round-figure mark, warranting some caution for aggressive bearish traders and positioning for any further depreciating move.

Despite a generally positive tone around the equity markets, the Japanese Yen (JPY) attracts some haven flows amid worries about a deeper global economic downturn and acts as a headwind for the GBP/JPY cross. That said, the disappointing Japanese macro data keeps a lid on any meaningful gains for the JPY and helps limit the downside for the cross. The latest survey from Jibun Bank showed that the manufacturing sector in Japan continued to contract in August. In fact, the Manufacturing PMI was finalized at 49.6 as compared to the original estimate for a reading of 49.7.

Adding to this, Japan's Finance Ministry reported that Capital Spending by companies increased by 4.5% from a year earlier during the April-June period, down from 11.0% prior and missing consensus expectations for a 5.4% rise. Apart from this, the divergent policy stance adopted by the Bank of Japan (BoJ) and another major central bank, might hold back traders from placing aggressive bullish bets around the JPY. It is worth recalling that the BoJ is the only central bank in the world to maintain negative interest rates and is anticipated to stick to its ultra-easy policy settings.

Moreover, BoJ board member Toyoaki Nakamura said this Thursday that it was premature to tighten monetary policy as recent increases in inflation were mostly driven by higher import costs rather than wage gains. This comes on the back of BoJ Governor Kazuo Ueda's dovish remarks last week, saying that the underlying inflation in Japan remains a bit below the 2% target, and ensures that the central bank may keep the status quo until next summer. In contrast, the Bank of England (BoE) is anticipated to continue with its policy tightening cycle to combat high inflation.

The bets were reaffirmed by BoE Deputy Governor Ben Broadbent's comments last week, saying that policy rates may well have to remain in restrictive territory for some time as the knock-on effects of the surge in prices were unlikely to fade away rapidly. Adding to this, BoE Chief Economist Huw Pill noted on Thursday that inflation in the UK remains "too high" and added that there is a lot of policy in the pipeline to come through. This suggests that the path of least resistance for the GBP/JPY cross is to the upside and supports prospects for the emergence of some dip-buying.

Technical levels to watch