GBP/JPY edges lower to near 187.50 as BoJ signals to raise rates further

• GBP/JPY appreciates as BoJ officials indicate potential further policy tightening.
• JP Morgan Asset Management suggests that the BoJ might only consider increasing rates further if the Fed lowers its rates.
• The Pound Sterling may decline due to increased safe-haven flows amid heightened Middle-East tensions.

GBP/JPY recovers its recent gains from the previous two sessions, trading around 187.40 during the Asian session on Friday. Traders closely monitor Japan's monetary policy outlook, as central bank officials have signaled a readiness to raise rates further. However, they have adopted a more cautious stance due to heightened market volatility.

On Friday, Bloomberg reported that JP Morgan Asset Management (JPAM) believes the Bank of Japan is unlikely to raise interest rates in the near term. According to JPAM, the BoJ may only consider further rate hikes if the Federal Reserve cuts rates and the US economy stabilizes. They anticipate that any additional tightening by the BoJ is more likely to occur in 2025, provided the global economic environment remains stable.

The GBP/JPY cross may experience downward pressure due to increased safe-haven flows amid heightened geopolitical tensions in the Middle East. The recent escalation followed the killing of senior members of militant groups Hamas and Hezbollah, which raised concerns about potential retaliatory actions by Iran against Israel.

On Thursday, Israeli forces intensified their airstrikes on the Gaza Strip, resulting in at least 40 casualties, according to Palestinian medics. This escalation has further intensified the conflict between Israel and Hamas-led militants, as Israel prepares for the possibility of a broader regional conflict.

The Pound Sterling (GBP) faced challenges following the Bank of England's (BoE) decision last week to cut interest rates from a 16-year high. The rate was lowered by a quarter-point to 5% after a close vote among policymakers, who were divided on whether inflation pressures had sufficiently eased. BoE Governor Andrew Bailey indicated that the Monetary Policy Committee would proceed cautiously in the future.