GBP/JPY remains on the defensive below 162.00 mark, downside seems cushioned

• GBP/JPY witnessed two-way price moves around the 162.00 mark on Tuesday.
• The markets seem to have digested the BoJ’s move to arrest the rise in yields.
• A positive risk tone undermined the safe-haven JPY and extended some support.

The GBP/JPY cross seesawed between tepid gains/minor losses through the early European session and was last seen trading just below the 162.00 round-figure mark.

The cross edged higher during the early part of the trading Tuesday after the Bank of Japan intervened in the markets for the second consecutive day to arrest the rise in yields. The uptick, however, lacked bullish conviction and ran out of steam near the 162.70 region. As investors digested the BoJ's desperate move, extremely overbought conditions held back bulls from placing fresh bets around the GBP/JPY cross, instead prompted some long-unwinding.

On the other hand, the British pound was weighed down by the overnight dovish sounding remarks by the Bank of England Governor Andrew Bailey, saying that they are beginning to see evidence of a slowdown in economic growth. Bailey largely stuck to the tone from this monthly policy decision, wherein policymakers softened their language on the need for further interest rate hikes. This was seen as another factor that exerted pressure on the GBP/JPY cross.

That said, a combination of factors acted as a tailwind and helped limit any further downside, at least for the time being. A generally positive tone around the equity markets continued undermining the safe-haven Japanese yen. Apart from this, modest US dollar weakness extended some support to sterling and assisted the GBP/JPY cross to find some support near the 161.20 region. This, in turn, warrants caution before positioning for any further losses.

The two-way price move on Tuesday comes on the back of the overnight sharp pullback of over 250 pips from the highest level since May 2016 and points to indecision among traders. Given the recent surge from sub-151.00 levels, or the monthly low touched on March 8, this might still be categorized as a consolidation phase. Hence, the corrective pullback is more likely to be short-lived amid expectations that the BoJ will stick to its ultra-lose policy stance.

Technical levels to watch