GBP/JPY advances to near 192.00 despite a dovish sentiment surrounding the BoE

• GBP/JPY could face challenges as the BoE is widely expected to lower its interest rate in February.
• The Japanese Yen could gain support due to the increased likelihood of the BoJ hiking interest rates later this week.
• Tomoko Yoshino, the head of Japan's largest trade union, Rengo, reaffirms the ongoing momentum for wage increases in Japan.

GBP/JPY continues to remain in positive territory for the fourth successive day, trading around 192.00 during the European hours on Wednesday. However, this upside of the GBP/JPY cross could be limited as the Pound Sterling (GBP) remains under pressure after the release of labor market data from the United Kingdom (UK) on Tuesday.

The ILO Unemployment Rate unexpectedly rose to 4.4%, along with the sharpest drop in payroll numbers since November 2020, signaling a potential weakening in the labor market. Following the labor market report, analysts at Nomura noted that this data provides the BoE with a "green light to cut in February." Markets are also betting on one or two more reductions after February.

Last week's data pointed to an unforeseen slowdown in inflation and weaker-than-expected economic growth. As a result, the Bank of England (BoE) is widely anticipated to lower the key interest rate by 25 basis points to 4.5% during its policy meeting on February 6.

Additionally, the GBP/JPY cross may depreciate as the Japanese Yen (JPY) could draw support from rising expectations that the Bank of Japan (BoJ) will hike interest rates later this week. Hawkish comments from Bank of Japan (BoJ) officials, combined with optimism that rising wages will help Japan sustainably achieve its 2% inflation target, bolster expectations for a potential rate hike on Friday.

Tomoko Yoshino, head of Japan's largest trade union, Rengo, echoed the BoJ’s sentiment, affirming the momentum for wage increases. The BoJ has consistently emphasized that sustained, broad-based wage growth is a key prerequisite for raising short-term interest rates.