GBP/JPY surrenders major part of intraday gains to one-week top, back below mid-197.00s

• GBP/JPY retreats after touching a one-week high earlier this Tuesday.
• Intervention warning prompts JPY short-covering and exerts pressure.
• BoJ rate hike uncertainty should cap the JPY and support spot prices.

The GBP/JPY cross attracts some intraday sellers following an early move up to the 198.25 area, or a one-week top and retreats to the lower end of its daily range during the first half of the European session. Spot prices slide back below the mid-197.00s amid the emergence of some buying around the Japanese Yen (JPY), though the fundamental backdrop warrants caution for bearish traders. 

Japan's Finance Minister Katsunobu Kato was out with some verbal intervention and reiterated that the government will take appropriate action against excessive FX moves, including those driven by speculators. Furthermore, the Bank of Japan (BoJ) Governor Kazuo Ueda left the door open for a rate hike at the January or March policy meeting. This, along with the cautious market mood, offers some support to the safe-haven JPY and exerts some downward pressure on the GBP/JPY cross. 

Investors, however, remain sceptical about the likely timing of when the Bank of Japan (BoJ) will hike rates again, which, in turn, might hold back the JPY bulls from placing aggressive bets. The British Pound (GBP), on the other hand, draws support from a modest US Dollar (USD) weakness and might contribute to limiting any meaningful downside for the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have formed a near-term top. 

Moving ahead, traders now look forward to the release of the UK Construction PMI, which might influence the GBP and provide some impetus to spot prices. The immediate market reaction, however, is likely to be short-lived, suggesting that the GBP/JPY cross remains at the mercy of the JPY price dynamics.