GBP/JPY fell in early Asian trading on Tuesday, ending a three-day rebound, with the exchange rate falling from a high of 204.25 to below 203. The shift in market sentiment was mainly driven by policy signals from Japan.

In his speech, Japanese Economy Minister Norihide Kiuchi stressed that exchange rate fluctuations should "reflect economic fundamentals and remain stable" and said that he would closely monitor the impact of exchange rate changes on the domestic economy.

This statement was interpreted by the market as a sign that the Japanese government might take intervention measures to curb the depreciation of the yen, prompting traders to close their short yen positions.

Meanwhile, the market is closely watching the Bank of Japan (BoJ) interest rate decision on Thursday. While the BoJ is widely expected to keep its policy unchanged, recent inflation data has strengthened the possibility of a rate hike this year.

Data showed that Japan's service sector producer price index (SPPI) rose 3.0% year-on-year in September, marking the second consecutive month of growth. Furthermore, consumer inflation has been above the Bank of Japan's 2% target for more than three consecutive years, leading the market to reassess the possibility of a policy adjustment by the Bank of Japan in December or early next year.

A Tokyo foreign exchange strategist pointed out: "Minister Kiuchi's speech represents a subtle shift in the government's attitude, suggesting that exchange rate intervention is no longer a 'verbal warning' but may enter the actual preparation stage."

In contrast, the outlook for monetary policy in the UK is decidedly dovish, with the Bank of England (BoE) widely expected to be forced to cut interest rates in the coming months to cope with the dual pressures of slowing economic growth and rising fiscal uncertainty.

Especially before the release of the autumn budget, investors were generally concerned that fiscal expansion might further push up debt costs, thereby weakening the attractiveness of the pound.

Technically, GBP/JPY is experiencing significant short-term pressure around 203. If the exchange rate continues to decline and breaks below the medium-term support level of 202.45, it is expected to further retest the psychological level of 202.00 or even lower.

On the upside, if the price returns above 203.80, it is expected to retest the resistance line of 204.25, but the overall trend is still inclined to fluctuate downward.

An analyst at a London-based foreign exchange agency commented: "Under the dual pressure of a strong yen and a weak pound, GBP/JPY may enter a short-term correction phase until the market has clearer signals on the BoJ's policy outlook."


Editor's opinion:

While the BoJ may not be in a rush to raise interest rates in the short term, persistent inflationary pressures create a policy divide with new Prime Minister Sanae Takaichi's expansionary fiscal stance. This "fiscal expansion versus monetary tightening" dynamic will continue to influence the yen's fluctuations.

Pay attention to the BoJ's decision and the pound's reaction to the UK's fiscal policy signals. In the medium and long term, be wary of Japan's possible substantial intervention, which may become a key turning point in the future trend of GBP/JPY.