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During Friday's Asian session, the GBP/JPY cross attracts some purchasing near the 177.50 area and stages a modest rebound from its lowest level since mid-May reached the day before. In the last hour, spot prices have climbed to a new daily high, but have failed to extend beyond the mid-178.00s as traders eagerly await the outcome of the highly anticipated two-day Bank of Japan (BoJ) policy meeting.

The intraday recovery of approximately 100 pips in the GBP/JPY pair is largely attributable to repositioning trades advance of the key central bank event risk. As a result of rumours that the Bank of Japan may alter its Yield Curve Control (YCC) policy, the upside remains constrained. Stronger Tokyo CPI figures, which unexpectedly rose in July and remain well above the BoJ's 2% target, reaffirmed the wagers. In turn, this pushes the yield on the 10-year Japanese Government Bond (JGB) above the BoJ's tolerance band, which, along with a softer risk tone, supports the safe-haven Japanese Yen (JPY) and functions as a headwind for the cross.

Aside from this, diminishing odds for more aggressive rate increases by the Bank of England (BoE), bolstered by weaker UK consumer inflation figures from the previous week, contribute to limiting the upside for the GBP/JPY cross. Governor Kazuo Ueda of the Bank of Japan reaffirmed that the central bank will maintain its accommodating monetary stance and added that the long-term yield rate is stable under the YCC policy. In addition, a government spokesperson stated earlier this week that Japan's inflation will likely decrease to around 1.5% the following year after removing the impact of one-time factors. Consequently, this discourages traders from placing aggressive direction wagers.

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