GBP/JPY looks vulnerable above 181.00 as odds of a tweak in BoJ policy accelerate

• GBP/JPY is expected to deliver more downside below 181.00 as the BoJ could tweak its ultra-dovish interest rate policy.
• The IMF said on Tuesday that the BoJ should look for moving away from supportive monetary policy.
• A survey from Reuters showed that interest rates in the UK economy would peak around 5.75%.

The GBP/JPY pair is expected to face more sell-off and will continue its downside move below the immediate support of 181.00 in the European session. The cross is facing pressure as market participants have turned mixed about the Bank of Japan’s (BoJ) monetary policy, which will be announced on July 28.

Wages in Japan are rising after a change in corporate behavior, which has also changed the situation of stubborn deflation. Higher disposable income in households has improved the overall demand and support to keep inflation steadily above 2%. Therefore, investors are hoping that the BoJ could tweak its ultra-dovish interest rate policy this time.

The International Monetary Fund (IMF) said on Tuesday that the BoJ should look for moving away from supportive monetary policy.

Apart from the BoJ policy, guidance about inflation will also be in focus. Meanwhile, the Japanese government is out with its outlook on the country’s inflation, noting that inflation is seen staying around 0.7% in the longer term. “Wages are projected to increase by 2.5% in FY24, following a 2.6% jump in FY23,” the government said.

The Pound Sterling is failing to find support despite expectations of a hawkish interest rate decision by the Bank of England (BoE), which will be announced on August 03. Inflation in the United Kingdom economy is highest in comparison with G7 economies, which assures that more interest rate hikes from the BoE are in the pipeline.

A survey from Reuters showed that interest rates in the UK economy would peak around 5.75%, which indicates that three more small interest rate hikes are still favored. It would be worth watching whether UK PM Rishi Sunak would fulfill his promise of halving inflation to 5%.