GBP/JPY flirts with 162.00 mark, hangs near two-week low set on Wednesday

• GBP/JPY meets with a fresh supply on Thursday and drops closer to the overnight swing low.
• Looming recession risks benefit the safe-haven JPY and exert downward pressure on the cross.
• A modest pickup in demand for the GBP could limit losses ahead of the BoJ decision on Friday.

The GBP/JPY cross comes under some renewed selling pressure on Thursday and extends its steady intraday descent through the early European session. Spot prices slide back below the 162.00 mark in the last hour and remain well within the striking distance of a nearly two-week low touched on Wednesday.

The Japanese Yen (JPY) attracts some haven flows amid worries about a deeper global economic downturn and turns out to be a key factor dragging the GBP/JPY cross lower. The market concerns were fueled by weaker Chinese inflation figures, which showed that domestic demand remains tepid despite the lifting of anti-COVID measures earlier this year and pointed to a sluggish economic recovery.

The downside for the GBP/JPY cross, however, seems cushioned, at least for the time being, amid expectations that the Bank of Japan (BoJ) will stick to its dovish stance to support the fragile domestic economy. The bets were further lifted by the release of the final GDP print, which showed that Japan narrowly averted a technical recession in the final months of 2022 and reaffirmed continued weakness in the economy.

Moreover, the incoming BoJ Governor Kazuo Ueda recently stressed the need to maintain the ultra-loose policy settings and said that the central bank isn't seeking a quick move away from a decade of massive easing. This, along with a pickup in demand for the British Pound, bolstered by a modest US Dollar pullback from a three-month peak, could offer some support to the GBP/JPY cross and help limit deeper losses.

In the absence of any relevant economic data from the UK, the aforementioned mixed fundamental backdrop makes it prudent to wait for some follow-through selling below the overnight swing low, around the 161.70 area, before placing fresh bearish bets. Traders might also prefer to move to the sidelines ahead of the BoJ monetary policy decision, scheduled to be announced during the Asian session on Friday.

Technical levels to watch