GBP/JPY holds above 199.00, remains close to multi-month top ahead of UK budget

• GBP/JPY pulls back from a multi-month peak, though the downside potential seems limited.
• The BoJ rate-hike uncertainty could undermine the JPY and lend some support to the cross. 
• Traders look to the UK Autumn Budget for short-term impetus ahead of the BoJ on Thursday.

The GBP/JPY cross edges lower during the Asian session on Wednesday and erodes a part of the previous day's gains to over a three-month peak, around the 199.70 region. Spot prices, however, lack follow-through selling and manage to hold above the 199.00 mark as trades look to the UK Autumn Budget for some meaningful impetus.

This will be the first budget announcement under the recently elected Labour government where Rachel Reeves, UK Chancellor of the Exchequer, is expected to raise taxes and increase public spending as suggested by Prime Minister Keir Starmer. Traders will keenly focus on the overall spending plans as it will influence the Bank of England’s (BoE) interest rate path, which, in turn, should influence the British Pound (GBP) and provide some meaningful impetus to the GBP/JPY cross. 

In the meantime, the possibility of more BoE rate cuts in November and December, bolstered by a fall in the UK Consumer Price Index to the lowest level since April 2021 and below the central bank's 2% target, is seen acting as a headwind for the GBP. The Japanese Yen (JPY), on the other hand, draws some support from fears that authorities will intervene in the market to prop up the domestic currency. This turns out to be another factor exerting some pressure on the GBP/JPY cross. 

Meanwhile, the loss of a parliamentary majority by Japan's ruling coalition raised doubts over the Bank of Japan's (BoJ) ability to tighten its monetary policy further. This, along with the prevalent risk-on environment, might keep a lid on any meaningful appreciating move for the JPY and help limit the downside for the GBP/JPY cross. Hence, any subsequent slide might still be seen as a buying opportunity, warranting some caution before confirming that spot prices have topped out.