British Pound flat below 217.00 as JPY intervention risks cap gains; bullish bias intact

The GBP/JPY cross struggles to gain any meaningful traction and seesaws between tepid gains/minor losses through the early part of the European session on Tuesday. Spot prices remain confined within the previous day's range and currently trade just below the 217.00 mark, nearly unchanged for the day.

Traders remain on high amid speculations that Japanese authorities will step in to prop up the domestic currency. Adding to this, Japan's Finance Minister, Satsuki Katayama, said that a change to the Government Pension Investment Fund (GPIF) asset allocation could be examined if the investment environment shifts sharply. This, in turn, offers some support to the Japanese Yen (JPY) and turns out to be a key factor acting as a headwind for the GBP/JPY cross.

However, persistently wide interest rate differential between Japan and other major economies, including the UK, holds back the JPY bulls from placing aggressive bets. In fact, the Bank of Japan (BoJ) raised its policy rate in June to 1% or, the highest level since 1995, and the Bank of England's (BoE) base rate is at 3.75%, leaving a rate differential of around 275 basis points (bps). This keeps the so-called JPY carry trade active and limits the downside for the GBP/JPY cross.

Meanwhile, a further escalation of tensions between the US and Iran, along with the closure of the critical Strait of Hormuz, adds to economic concerns amid Japan’s heavy reliance on imported oil from the Middle East. Furthermore, a softer US Dollar (USD) benefits the British Pound (GBP) amid easing UK political uncertainty and hawkish BoE bets, which backs the case for the resumption of the GBP/JPY pair's upward trajectory witnessed over the past three weeks or so.