British Pound remains on the front foot vs JPY as Mideast risks counter intervention fears

The GBP/JPY cross turns positive for the fourth straight day following an intraday dip to the 214.35-214.30 region on Thursday and draws support from a combination of factors. The British Pound (GBP) benefits from a mildly softer US Dollar (USD), which, along with the underlying bearish sentiment surrounding the Japanese Yen (JPY), continues to act as a tailwind for the currency pair.

Investors remain worried that Japan's economy will remain under strain amid the ongoing Middle East conflict and continued disruptions to energy supplies through the Strait of Hormuz. In fact, Iran announced the closure of the strategic waterway after the US launched a fresh wave of strikes across the country under orders from US President Donald Trump. This has been a key factor behind the JPY's relative underperformance and offering support to the GBP/JPY cross.

However, speculations that Japanese authorities might step in again to prop up the domestic currency hold back the JPY bears from placing aggressive bets. This, along with the divergent Bank of Japan (BoJ)-Bank of England (BoE) policy expectations, keeps the GBP/JPY cross below the 215.00 psychological mark and the weekly high set on Wednesday. Investors seem convinced that the BoJ will hike interest rates at its upcoming monetary policy meeting on June 15-16.

In contrast, traders have been scaling back their expectations for more aggressive rate hikes by the Bank of England (BoE) in reaction to softer UK consumer inflation figures and an unexpected rise in the UK Unemployment Rate. Furthermore, the UK  political uncertainty, amid challenges to UK Prime Minister Keir Starmer's leadership, could act as a headwind for the GBP and contribute to capping the GBP/JPY cross, warranting caution before positioning for further gains.