GBP/JPY eyes more weakness below 169.00 despite a dovish BOJ policy

• GBP/JPY is expected to deliver a steep fall below 169.00 despite an ultra-loose BOJ policy.
• The BOJ will continue policy easing to achieve pre-pandemic growth rates.
• Next week, the BOE could announce a rate hike by 75 bps to combat mounting price pressures.

The GBP/JPY pair has surrendered its entire intraday gains after facing barricades around 169.80 in the early European session. The cross has witnessed selling pressure from the market participants despite a continuation of the dovish stance by the Bank of Japan (BOJ) on interest rates.

BOJ Governor Haruhiko Kuroda kept the policy rates unchanged citing weaker growth prospects and external demand shocks responsible. The central bank will continue easing policy further in order to match the current growth rate with pre-pandemic growth levels.

The continuation of ultra-dovish monetary policy could terminate the recent pullback in Japanese yen as policy divergence will continue to heat up further as other G-7 central banks are bound to hike their rate cycle amid a historic surge in inflationary pressures.

Going forward, Japanese officials could announce a stimulus package. Japan’s Finance Minister Shunichi Suzuki said on Thursday that “tomorrow, a stimulus package will be decided.” Japan’s national broadcaster, NHK, reported that a stimulus package of more than JPY 29 trillion is in consideration.

On the UK front, pound investors are preparing ahead of the interest rate decision by the Bank of England (BOE).  To bring price stability to the UK economy, BOE policymakers will steer their rate hike mechanism. November’s monetary policy carries more importance as it will be first after the appointment of Rishi Sunak as UK Prime Minister.

18 of 30 economists surveyed by Reuters said that they expect the BOE Governor Andrew Bailey to hike its policy rate by 75 basis points (bps) at a policy meeting on November 3. The BOE is projected to reach the terminal policy rate of 4.25% in the first quarter of 2023. Currently, the BOE’s interest rate stands at 2.25%.