GBP/JPY looks to regain 182.00 as risk profile improves, focus on China stimulus, BoJ

• GBP/JPY clings to mild gains, reverses week-start retreat from the highest level in two weeks.
• China stimulus expectations join concerns about major central banks’ proximity to policy pivot to fuel market optimism.
• Benchmark US 10-year Treasury bond yields renew two-week high but two-year counterpart retreats.
• Risk catalysts will direct intraday moves but BoJ announcements are key for clear view.

GBP/JPY picks up bids to refresh intraday high near 181.75 heading into Tuesday’s London open as upbeat market sentiment recalls the buyers after a downbeat start of the week. In doing so, the cross-currency pair also traces upbeat US 10-year Treasury bond yields while struggling to justify the mixed concerns about the major central banks, including the Bank of Japan (BoJ).

It’s worth noting that headlines fueling hopes of China stimulus and bank intervention from Beijing seem to underpin the latest optimism in the market, which in turn favors the yields and equities in the Asia-Pacific zone, even if the US stock futures remain lackluster.

That said, monthly PMIs from Japan and the UK both appeared downbeat on Monday but the Japanese government’s closer ties with the BoJ may help them defend the easy-money policy, which in turn propels the GBP/JPY price. Furthermore, the distance from the Bank of England (BoE) Monetary policy meeting and UK PM Rishi Sunak’s announcements of multiple stimulus measures to defend the Tory government seems to put a floor under the British Pound (GBP).

On Monday, Reuters conveyed comments from an anonymous Japanese government spokesperson who expressed optimism about the ties between the Bank of Japan (BoJ) and the Japanese government. The policymaker showed readiness to do their utmost to ensure Japan achieves a positive wage and inflation cycle while also suggesting that consumer inflation move around 1.5% in fiscal 2024. Before that, Japan’s preliminary readings of Jibun Bank Manufacturing PMI and Services PMI for July appeared unimpressive as the former slid beneath 49.8 market forecasts and prior to 49.4 but the latter reprinted 52.1 figures for the said month.

On the other hand, the UK Preliminary figures of S&P Global/CIPS Manufacturing PMI for July dropped to the lowest level of 2023 with the 45.0 mark versus the market’s expectations of 46.1 and previous readings of 46.5. That said, the Services PMI also printed a six-month low by declining to 51.5 from 53.7 prior and 53.0 market forecasts. With this, the first readings of the Composite PMI edged lower to 50.7 compared to analysts’ estimations of 52.4 and 52.8 prior.

While portraying the mood, the S&P500 Futures remain sidelined near 4,580, struggling to extend the previous day’s recovery, whereas the US 10-year and two-year Treasury bond yields retreat from the highest levels in two weeks to 3.86% and 4.84% in that order.

Moving on, a light calendar at home and abroad may restrict immediate moves of the GBP/JPY pair. However, headlines affecting the sentiment will be critical to watch for clear directions.

Technical analysis

Although the 13-day-old previous resistance line restricts the immediate downside of the GBP/JPY pair near 180.60, buyers need validation from the 21-DMA hurdle of around 182.10 to gain market’s acceptance.