GBP/JPY rebounds firmly from 181.00 as BoE-BoJ policy divergence set to widen further

• GBP/JPY recovers from 180.80 as the BoE looks set to deliver the 14^th consecutive interest rate hike.
• The IMF said on Tuesday that the BoJ should look for moving away from supportive monetary policy.
• Wage rise could force the BoJ to discuss a tweak in YCC in the next policy meetings.

The GBP/JPY pair discovered strength around 180.80 and recovered sharply in the Asian session. The cross attracts significant bids as the Bank of England (BoE)-Bank of Japan (BoJ) policy divergence is set to widen further.

Central banks in Japan and the United Kingdom are set to announce monetary policy on July 28 and August 03 respectively in which the former is expected to keep interest rates unchanged while the latter is set to tighten monetary policy further so that stubborn inflation could return to 2%.

A few days back market participants were expecting that BoJ Governor Kazuo Ueda will maintain an ultra-dovish interest rate policy along with expansionary guidance as the agenda is to keep inflation steadily above 2%.

Inflationary pressures in Japan were majorly driven by the higher cost of imported goods while domestic support was absent. The situation is changing now due to a shift in corporate behavior towards wage hikes, which is supporting domestic demand. Novel circumstances could force the BoJ to discuss a tweak in Yield Curve Control (YCC) in the next policy meetings. Also, the International Monetary Fund (IMF) said on Tuesday that the BoJ should look for moving away from supportive monetary policy.

Meanwhile, the Pound Sterling picks support as the BoE is preparing for a 14^th straight interest rate hike as a victory against sticky inflation is far from sight. BoE Governor Andrew Bailey is expected to announce a 25 basis point (bp) interest rate hike, which will push interest rates to 5.25%. A poll from Reuters conveyed that interest rates in the United Kingdom will peak around 5.75%.