GBP/JPY consolidates in a range below 181.00 mark, downside seems cushioned

• GBP/JPY gains some positive traction on Monday, albeit lacks follow-through buying.
• The BoE’s less hawkish signals turn out to be a key factor capping gains for the cross.
• A more dovish stance adopted by the BoJ acts as a tailwind and limits the downside.

The GBP/JPY cross kicks off the new week on a positive note, albeit struggles to capitalize on the move and remains below the 181.00 round figure through the Asian session. Spot prices currently trade around the 180.70-180.75 region, nearly unchanged for the day, and the mixed fundamental backdrop warrants some caution before placing aggressive directional bets.

The Bank of England (BoE) last week signalled that the tightening cycle may be nearing an end, which acts as a headwind for the British Pound (GBP) and caps the upside for the GBP/JPY cross. It is worth recalling that the UK central bank called its current monetary policy stance "restrictive" and forced investors to scale back expectations for the peak rate. That said, a more dovish stance adopted by the Bank of Japan (BoJ) continues to undermine the Japanese Yen (JPY) and should limit the downside for spot prices, at least for the time being.

It is worth recalling that the Japanese central bank took steps to make its Yield Curve Control (YCC) policy more flexible at the end of its July monetary policy meeting and fueled speculations about an imminent shift away from the ultra-loose monetary policy. The BoJ Governor Kazuo Ueda, however, moved quickly to dampen speculation about an early end to the negative rate policy and reiterated that the central bank won't hesitate to ease policy further. Ueda added that more time was needed to sustainably achieve the 2% inflation target.

Furthermore, the BoJ's Summary of Opinions released this Monday revealed that policymakers generally backed the case for the need to patiently continue with the current monetary easing towards achieving the price stability target. This suggests that the path of least resistance for the GBP/JPY cross is to the upside. Hence, it will be prudent to wait for strong follow-through selling before positioning for an extension of last week's slide from a near one-month peak in the absence of any relevant market-moving economic releases from the UK on Monday.

Technical levels to watch