GBP/JPY slips to near 184.00 on dovish sentiment around the BoJ

• GBP/JPY continues to lose ground despite thin trading amid Japan’s bank holiday.
• The Japanese Yen is supported by the mood surrounding the Bank of Japan.
• The Bank of England is expected to hold rates steady at Thursday’s policy meeting.

GBP/JPY is extending its decline for a second straight day, trading around 184.20 during European hours on Monday. The Japanese yen (JPY) is finding support despite low trading volumes due to Japan’s Respect for the Elderly Day Bank Holiday. This downward pressure on the GBP/JPY cross is likely driven by dovish sentiment around the BoJ.

Traders await interest rate decisions from the Bank of England (BoE) and the Bank of Japan (BoJ) later this week. The BoJ is expected to keep rates unchanged, leaving open the possibility of a rate hike as early as October. Similarly, the BoE is also expected to keep rates steady in its upcoming decision.

On Friday, Fitch Ratings’ latest report on the Bank of Japan’s policy outlook suggested the BoJ could raise rates to 0.5% by the end of 2024, 0.75% in 2025 and 1.0% by the end of 2026 In addition, BoJ hawkish policymaker Naoki Tamura said on Thursday that the central bank should raise interest rates to at least 1% as early as the second half of the next fiscal year. This comment reinforces the BoJ’s commitment to continued monetary tightening.

On the United Kingdom (UK) front, the British pound (GBP) will be guided by consumer price index (CPI) data for August due on Wednesday. Headline inflation is expected to rise steadily by 2.2% year-on-year in August. Meanwhile, annual core inflation may rise at a faster pace of 3.5% from 3.3% in July.