GBP/JPY is trapped between last week's range, but bulls are moving in

• GBP/JPY is trapped between last week's range but bulls are in favour. 
• UK politics and central bank divergences are in play. 

GBP/JPY has had a turbulent start to the week with pressures from both sides of the world. In the UK, economic data and politics are in play while from Japan, the Ministry of Finance hand was likely formed again to intervene in the forex markets causing huge volatility ahead of the Tokyo open. At the time of writing, GBP/JPY is trading at 168.00 and has travelled between 169.78 and 165.41, up by some 0.82%. 

Rishi Sunak will become Britain's youngest prime minister and will lead the Conservative Party and will be the UK's third prime minister in less than two months.

He replaces Liz Truss, who only lasted 44 days before she resigned. He told his lawmakers in parliament on Monday that they faced an "existential crisis" and must "unite or die". He told the country it faced a "profound economic challenge".

"We now need stability and unity, and I will make it my utmost priority to bring our party and our country together," he said.

The multi-millionaire former hedge fund boss will be expected to launch spending cuts to try to rebuild Britain's fiscal reputation, just as the country slides into one of the toughest downturns in decades, hit by the surging cost of energy and food.

 The UK’s poor fundamental outlook will potentially keep the pound at bay, however, despite the relief of the new PM. Retail Sales were dismal and the latest data in this morning’s UK preliminary October PMI underpins the risk that the UK may already be in recession.  Analysts at Rabobank argue that both business and consumer confidence in the UK has been weak for some time, but explained ''the spike in market interest rates on the back of the Truss agenda will have severely worsened confidence and the UK economic outlook.''

Eyes on BoE and BoJ

This brings us to the central banks. ''While the BoE is expected to announce a hefty rate hike on November 3, this may do little to support cable given expectations of further aggressive rate hikes from the Fed,'' the analysts at Rabobank said. 

With respect to the Bank of Japan, ''There has been no indication from the BoJ that it is willing to step away from its very accommodative monetary policy settings.  The BoJ essentially wants to nurture inflation until there are more widespread signs of wage inflation,'' the analysts said.

''The market is aware that interest rate differentials continue to act as an upward drag on USD/JPY.  This means that the best the MoF can be expected to do with FX intervention is to slow the move higher until the Fed is content that it is in control of inflation expectations in the US,'' the analysts argued. ''A tweak to the BoJ’s YCC policy would give FX intervention more teeth. That said, a continued display by the BoJ at this week’s policy meeting that it favours current settings suggests USD/JPY remains a buy on dips''

GBP/JPY technical analysis

The price is trapped between last week's range and the M-formation is holding up the bear's progress in an attempt to break below the horizontal support around 166.50. The trendline support will keep the bulls in favour who eye a break of 170.00.