GBP/JPY trades around 191.50 after recovering recent losses

• GBP/JPY could further depreciate amid the increased likelihood of further Bank of Japan rate hikes.
• The BoJ Summary of Opinions suggested that policymakers discussed the likelihood of raising interest rates further.
• The Pound Sterling struggles as the BoE is widely expected to deliver a 25 basis point rate cut on Thursday.

GBP/JPY trims its recent losses, trading around 191.50 during the European hours on Monday. However, the GBP/JPY cross could face challenges as the Japanese Yen (JPY) attracts increased buying demand, driven by rising expectations of further rate hikes by the Bank of Japan (BoJ).

Additionally, the BoJ Summary of Opinions suggested that policymakers discussed the likelihood of raising interest rates further. A significant rise in Tokyo's core inflation, at the fastest annual pace in nearly a year, supports prospects for further policy tightening by the BoJ, which provides some support to the JPY.

BoJ board members emphasized that it would be necessary to continue hiking rates if economic activity and prices remain on track, though this does little to boost the Japanese Yen. Japan's Economy Minister Ryosei Akazawa stated on Monday that officials aim to achieve the BoJ's 2% inflation goal and plan measures to mitigate the impact of rising living costs.

Further downside for the EUR/GBP cross appears possible as the Pound Sterling (GBP) faces risks due to expectations that the Bank of England (BoE) will restart its policy-easing cycle, likely cutting interest rates by 25 basis points (bps) to 4.5% in February.

Investors are closely watching the BoE's monetary policy decision next Thursday, with expectations of a dovish stance given recent signs of slowing inflation, despite continued wage growth acceleration. The BoE's monetary policy guidance could be dovish as recent inflation indicators show signs of deceleration, although wage growth remains on the rise. Financial market participants anticipate three interest rate cuts from the BoE this year amid declining labor demand and weakening business confidence.