GBP/JPY eases from daily high, still well bid around mid-163.00s amid the post-BoJ JPY selloff

• The post-BoJ selling around the JPY provided strong boost to GBP/JPY on Thursday.
• The risk-on impulse was seen as another factor that weighed on the safe-haven JPY.
• Extremely overstretched conditions provided respite to the JPY and capped gains.

The GBP/JPY cross trimmed a part of its strong intraday gains to the three-day high and retreated below mid-163.00s during the first half of the European session.

The cross built on the previous day's goodish rebound from the 159.60 area, or the monthly low and caught aggressive bids on Thursday in reaction to a dovish Bank of Japan statement. As was expected, the Japanese central bank stuck to its ultra-loose policy setting and vowed to conduct daily operations to defend its “near-zero” target for 10-year bond yields.

In the post-meeting press conference, the BoJ Governor Haruhiko Kuroda said that risks to the economy are skewed to the downside for the time being and showed readiness to ease policy further if necessary. Apart from this, the risk-on impulse - as depicted by strong move up in the equity markets - weighed on the safe-haven Japanese yen and acted as a tailwind for the GBP/JPY cross.

That said, extremely overstretched conditions offered some support to the JPY amid speculations that the recent freefall in the domestic currency could trigger verbal intervention. Apart from this, the relentless US dollar buying weighed on the British pound. The combination of factors attracted some selling around the GBP/JPY cross and led to a sharp intraday pullback of nearly 100 pips.

In the absence of any major market-moving economic releases from the UK, the sentiment surrounding the Japanese currency will continue to play a key role in influencing the GBP/JPY cross. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch