• GBP/JPY lacks any firm intraday direction and remains confined in a narrow range.
• The BoE’s less hawkish signals and a bleak outlook for the UK economy cap gains.
• A more dovish BoJ undermine the JPY and helps limit the downside for the cross.

The GBP/JPY cross struggles to capitalize on its weekly gains registered over the past two days and oscillates in a narrow trading band below the 183.00 mark through the first half of the European session on Wednesday.

Traders seem reluctant to place bullish bets around the British Pound (GBP) in the wake of a bleak outlook for the UK economy, which turns out to be a key factor acting as a headwind for the GBP/JPY cross. In fact, the National Institute of Economic and Social Research (NIESR) said that it would take until the third quarter of 2024 for UK output to return to its pre-pandemic peak. In its quarterly update, the NIESR added that there was a 60% risk of the government going to the polls during a recession.

This comes after a report from the British Retail Consortium showed on Tuesday that UK Retail Sales in July registered its weakest year-on-year growth since August 2022. Adding to this, the Bank of England's (BoE) less hawkish forward guidance, signalling that the tightening cycle may be nearing an end, continues to undermine the GBP. Apart from this, the emergence of some buying around the safe-haven Japanese Yen (JPY) further contributes to capping the upside for the GBP/JPY cross.

That said, a more dovish stance adopted by the Bank of Japan (BoJ) keeps a lid on any meaningful gains for the JPY and helps limit the downside for the GBP/JPY cross. It is worth recalling that the BoJ's Summary of Opinions released on Monday revealed that policymakers backed the case for the need to patiently continue with the current monetary easing towards achieving the price stability target. Apart from this, weaker wage growth data from Japan is seen as another factor weighing on the JPY.

The government data released on Tuesday showed that real wages in Japan fell for a 15th straight month in June, while nominal pay growth also slowed. This should allow the BoJ to stick to its current easy monetary policy settings, which, in turn, supports prospects for some meaningful appreciating move for the GBP/JPY cross. Traders, however, seem reluctant and prefer to wait on the sidelines ahead of important UK macro releases, including the Prelim Q2 GDP print on Friday.

Technical levels to watch