GBP/JPY flirts with multi-year top, around 183.65-70 region amid fresh JPY selling

• GBP/JPY kicks off the new week on a positive note and climbs back closer to the multi-year peak.
• The BoJ’s dovish stance continues to undermine the JPY and remains supportive of the move-up.
• Looming recession risks act as a headwind for the GBP and might cap the upside for spot prices.

The GBP/JPY cross attracts fresh buyers on the first day of a new week and steadily climbs back closer to its highest level since December 2015 touched on Friday. Spot prices currently trade around the 183.70-183.65 region, up over 0.20% for the day, and seem poised to prolong the recent well-established uptrend witnessed over the past three months or so.

The Japanese Yen (JPY) continues with its relative underperformance in the wake of a more dovish stance adopted by the Bank of Japan (BoJ) and turns out to be a key factor lending support to the GBP/JPY cross. In fact, market participants seem convinced that BoJ's negative interest-rate policy will remain in place at least until next year. Moreover, BoJ Governor Kazuo Ueda recently ruled out the possibility of any change in ultra-loose policy settings and signalled no immediate plans to alter the yield curve control measures.

In contrast, the Bank of England (BoE) Governor Andrew Bailey said last week that rates could remain at peak levels for longer than traders currently expect. Apart from this, a generally positive tone around the equity markets is seen undermining the safe-haven JPY and further acting as a tailwind for the GBP/JPY cross. That said, worries about economic headwinds stemming from rapidly rising borrowing costs might keep a lid on any further appreciating move against the backdrop of fears of an intervention by Japanese authorities. 

Concerns that the British economy is heading for a recession mounted sharply following a surprise 50 bps rate hike by the BoE in June. This, in, might hold back traders from placing aggressive bullish bets around the British Pound and cap gains for the GBP/JPY cross in the wake of overbought technical indicators on the daily chart. Market participants now look forward to the release of the final UK Manufacturing PMI for a fresh impetus. Nevertheless, the aforementioned supportive fundamental backdrop still seems tilted in favour of bulls.

Technical levels to watch