GBP/JPY spikes to nearly two-week high on reports that BoJ will keep policy unchanged

• GBP/JPY rallies hard to a nearly two-week high amid aggressive selling around the JPY.
• Reports indicate that the BoJ will stick to its dovish stance and weigh heavily on the JPY.
• The upbeat UK Retail Sales contribute to the British Pound’s relative outperformance.

The GBP/JPY cross catches aggressive bids on Friday and jumps back above the 182.00 round-figure mark during the early the European session, recovering its weekly losses registered over the past four days. Spot prices rally to a nearly two-week high in the last hour and currently trade around the 182.35-182.40 region, up over 1% for the day

The Japanese Yen (JPY) tumbles across the board in reaction to reports, citing sources familiar with the matter, that the Bank of Japan (BoJ) was leaning toward maintaining its yield curve control (YCC) strategy at its monetary policy meeting next week. This overshadows data showing that inflation in Japan remained above the central bank's 2% target for the 15th straight month in June and undermines the JPY, which, in turn, provides a strong boost to the GBP/JPY cross.

The British Pound's (GBP) relative outperformance could further be attributed to the better-than-expected release of the UK Retail Sales report released on Friday. That said, diminishing odds for more aggressive policy tightening by the Bank of England (BoE), bolstered by Wednesday's softer UK consumer inflation figures,  might hold back traders from placing aggressive bullish bets around the GBP and cap the upside for the GBP/JPY cross, at least for the time being.

The market focus now shifts to the highly-anticipated two-day BoJ meeting starting next Thursday. The decision is scheduled to be announced next Friday, which should provide a fresh directional impetus to the GBP/JPY cross. Nevertheless, spot prices seem poised to register modest gains for the first time in the previous three-week and remain well within the striking distance of the highest level since December 2015, around the 184.00 mark touched earlier this month.

Technical levels to watch