GBP/JPY hovers around 199.00 after LDP-coalition losing parliamentary majority

• GBP/JPY may struggle as the Japanese PM Ishiba is expected to remain in office despite the ruling LDP-coalition losing majority.
• The JPY may face challenges as Japan's opposition is expected to advocate for increased government spending and tax cuts.
• The GBP edges higher amid reduced likelihood of multiple interest rate cuts by the BoE in 2025.

GBP/JPY appreciates after opening with a gap down, trading around 198.90 during the European hours on Monday. However, the currency cross may face challenges as the Japanese Yen (JPY) holds ground as the Japanese Prime Minister (PM) Shigeru Ishiba is expected to remain in office despite the ruling Liberal Democratic Party (LDP) coalition losing its majority in the upper house election, as expected. This has probably eased concerns of a more severe political shakeup or potential resignation.

However, the JPY may face challenges as the opposition is likely to push for expanded government spending and tax cuts, which could drive Japanese Government Bond (JGB) yields to multi-year highs. However, Ishiba mentioned that the opposition's proposal to cut taxes would take too long, and needs quicker action to help struggling households.

Japanese Prime Minister Ishiba on Monday apologized to the ruling Liberal Democratic Party (LDP) for the election loss, adding that he will continue to govern in coalition with Komeito. Ishiba also highlighted that the most important thing for Japan is political stability, as it faces several challenges.

On a trade deal with the United States (US), Ishiba reiterated to reach a deal with the US on tariffs while protecting national interests. He stated that he wants to speak with President Trump at the earliest date possible to seek a solution on trade.

The GBP/JPY cross gains ground as the Pound Sterling (GBP) edges higher, driven by the diminished likelihood of multiple interest rate cuts by the Bank of England (BoE) in 2025.

A Reuters report suggested that several Wall Street brokers have revised their BoE rate cut expectations after June's UK Consumer Price Index (CPI) came in hotter than anticipated and labor market data for the three months ending in May showed less weakness than expected.