GBP/JPY faces some selling pressure below 189.00 amid hawkish sentiment surrounding the BoJ

• GBP/JPY attracts some sellers to near 188.70 in Monday’s early European session, down 1.27% on the day. 
• A rebound in Japanese 2Q GDP supports the case for a rate hike by the BoJ. 
• The preliminary UK August S&P Global/CIPS Manufacturing PMI and Japanese July National CPI will be the highlights this week. 

The GBP/JPY cross weakens around 188.70 on Monday during the early European trading hours. Hawkish sentiment surrounding the Bank of Japan (BoJ) and the stronger Japanese second-quarter Gross Domestic Product (GDP) data support the rally of the Japanese Yen (JPY) and drag the cross lower. 

Investors seem to be optimistic that Japan's better second-quarter GDP report last week would convince the Bank of Japan (BoJ) to raise interest rates further, which boosts the JPY broadly. The Japanese economy grew by 0.8% quarter-on-quarter in Q2, beating the market estimation of 0.5%.

Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, said that the reports are simply positive overall and “it supports the BoJ’s view and bodes well for further rate hikes, although the central bank would remain cautious as the last rate increase had caused a sharp spike in the Yen.”

Japanese Economy Minister Yoshitaka Shindo stated last week that the economy is estimated to recover gradually as wages and income improve, adding that the government will collaborate closely with the BoJ to implement flexible monetary policy in the future. 

On the other hand, the encouraging UK Retail Sales data on Friday has diminished bets of a second straight Bank of England (BoE) interest rate cut. This, in turn, might cap the downside for the Pound Sterling (GBP). However, UBS analysts expect another rate cut by the BoE in November. “We expect another 25 bps cut in November with more to come in 2025,” said UBS analysts. 

Traders will keep an eye on the preliminary UK S&P Global/CIPS Manufacturing Purchasing Managers Index (PMI) for August and Japanese National CPI for July for fresh impetus, which is due on Thursday and Friday, respectively.