GBP/JPY remains depressed below 185.00, eyes BoE’s Bailey for some meaningful impetus

• GBP/JPY trades with a mild negative bias for the second straight day, albeit lacks follow-through.
• The BoE’s bleak outlook for the UK economy continues to weigh on the GBP and exert pressure.
• The downside remains cushioned as traders now look to BoE Governor Andrew Bailey’s speech.

The GBP/JPY cross ticks lower for the second successive day on Wednesday and remains on the defensive below the 185.00 psychological mark through the first half of the European session. Spot prices, however, remain well within the previous day's broader trading range as traders await the Bank of England (BoE) Governor Andrew Bailey's speech for a fresh impetus.

In the meantime, the BoE's bleak outlook, warning that the UK economy was close to a recession and would have no meaningful growth in the coming years, continues to undermine the British Pound (GBP). Adding to this, the BoE's Chief Economist Huw Pill said on Monday that the upside risks to an excessive slowdown are high and added that the current market pricing for a first-rate cut in August 2024 does not seem totally unreasonable. This, in turn, is seen as another factor weighing on the GBP/JPY cross, though the downside seems cushioned in the wake of a more dovish stance adopted by the Bank of Japan (BoJ).

In fact, BoJ Governor Kazuo Ueda earlier this week said the country was making progress towards achieving the 2% inflation target but not enough to end ultra-loose policy yet. Ueda also underscored the uncertainty on whether smaller companies would be able to raise wages next year. However, Ueda, addressing the parliament this Wednesday, said that the central bank does not need to wait until inflation-adjusted wage growth turns positive before it ends ultra-loose monetary policy. Ueda added that wages and inflation needed to rise in tandem for the BoJ to consider exiting the decade-long accommodative policy settings.

The aforementioned mixed fundamental backdrop warrants some caution before placing aggressive directional bets around the GBP/JPY cross. That said, the the prevalent cautious market mood and speculations that Japanese authorities will intervene in the FX market, to combat a sustained depreciation in the domestic currency, could lend some support to the safe-haven Japanese Yen (JPY). This, in turn, should keep a lid on any intraday appreciating move for spot prices.

Technical levels to watch