GBP/JPY slides further below mid-208.00s amid notable JPY strength, ahead of UK jobs data

The GBP/JPY cross meets with a fresh supply in the vicinity of mid-209.00s during the Asian session on Tuesday and snaps a two-day winning streak. Spot prices drop to the 208.25 region in the last hour, stalling the recent recovery from a nearly two-month low, touched last Thursday.

The initial market reaction to Japan's weak Q4 GDP report published on Monday turns out to be short-lived amid hopes that Prime Minister Sanae Takaichi's policies will boost the economy. This might prompt the Bank of Japan (BoJ) to stick to its policy normalization path, which, in turn, helps revive demand for the Japanese Yen (JPY) and prompts fresh selling around the GBP/JPY cross.

Meanwhile, hawkish BoJ expectations mark a significant divergence in comparison to rising bets for a 25 basis points (bps) rate cut by the Bank of England (BoE) in March. This further exerts downward pressure on the GBP/JPY cross. Traders now look to the UK jobs report for some impetus ahead of the consumer inflation figures from the UK and Japan, on Wednesday and Friday, respectively.

The UK Office for National Statistics is expected to report that the number of people claiming jobless benefits rose to 22.8K in January. The Unemployment Rate, however, is seen holding steady at 5.1% during the three months to December. Meanwhile, the regular pay (excluding bonuses), along with total earnings (including bonuses), is expected to moderate during the reported period.

The crucial data would provide more cues about the BoE's policy outlook, which, in turn, will drive the British Pound (GBP) and produce short-term trading opportunities around the GBP/JPY cross. Nevertheless, the divergent BoJ-BoE policy expectations suggest that the path of least resistance for spot prices is to the downside, and a positive reaction to the UK jobs data is likely to be limited.