GBP/JPY rises above 199.00 due to political, trade uncertainties in Japan

• GBP/JPY gains ground as the Japanese Yen declines amid ongoing political uncertainty in Japan.
• The political concerns eased as Japan's PM Ishiba vowed to remain in office despite the ruling LDP coalition's defeat.
• Traders have slightly reduced their expectations for BoE policy easing, but they still project two rate cuts in 2025.

GBP/JPY continues its recovery, trading around 199.10 during the European hours on Tuesday. The currency cross gains ground as the Japanese Yen (JPY) struggles amid ongoing political uncertainty in Japan.

However, the concerns surrounding Japan's politics, including severe political shakeup or potential resignation, have eased as 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.

Additionally, the JPY faces downward pressure from prevailing trade uncertainties between Japan and the United States (US). Japan's chief tariff negotiator, Ryosei Akazawa, mentioned on Monday that he will aim for some kind of trade agreement with the US by August 1. Japan is now confronted with a new 25% US tariff on goods, scheduled to take effect on August 1, adding to the existing 25% tariff on automobiles, Japan's largest export to the US

Traders will likely observe S&P UK Purchasing Managers Index (PMI) data, due on Thursday, is expected to report the mildest contraction in manufacturing in six months, though the strongest services sector growth in nearly a year.

The Bank of England (BoE) may slow or pause its sales of long-dated bonds amid weak demand from traditional buyers such as pension funds. Additionally, traders have slightly dialed back expectations for BoE policy easing; they still anticipate two rate cuts in 2025.