GBP/JPY drifts lower amid notable JPY demand, holds above 202.50 ahead of UK jobs data

• GBP/JPY retreats around 100 pips from the daily top amid a pickup in the JPY demand.
• Expectations that political chaos could delay BoJ rate hikes might cap further JPY gains.
• Traders now look forward to the UK employment details for some meaningful impetus.

The GBP/JPY cross struggles to capitalize on the previous day's positive move and attracts aggressive intraday sellers following an Asian session rise to mid-203.00s. Spot prices currently trade around the 202.60 area, down 0.20% for the day, amid a broadly firmer Japanese Yen (JPY) as investors look forward to the release of the UK monthly employment details for a fresh impetus.

Stronger jobs data will reaffirm expectations that the Bank of England (BoE) has finished cutting interest rates as signs of faster inflation and a more resilient economy dampen the case for more easing. This, in turn, could boost the British Pound (GBP) and offer some support to the GBP/JPY cross. However, concerns over the UK's fiscal outlook ahead of the crucial Autumn budget in November might hold back the GBP bulls from placing aggressive bets.

Moreover, a goodish pickup in demand for the JPY might contribute to keeping a lid on the GBP/JPY cross. The latest comments from Japan's Finance Minister Katsunobu Kato on rapid moves in the foreign exchange market fueled speculations that authorities might intervene to stem further JPY weakness. This, along with fresh US-China trade tensions, benefits the JPY's relative safe-haven status and turns out to be a key factor exerting pressure on the currency pair.

Any meaningful JPY appreciation, however, seems elusive amid expectations that domestic political turmoil might create a challenge for the Bank of Japan (BoJ) to hike interest rates further. The long-standing Liberal Democratic Party (LDP)-Komeito coalition came to an abrupt end last week. The breakup means Sanae Takaichi would need support from other parties to confirm her as Japan's first female Prime Minister and for her key policies.

Apart from this, the prevalent risk-on environment might hold back traders from placing aggressive bullish bets around the safe-haven JPY and help limit losses for the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have topped out in the near-term and positioning for an extension of the recent pullback from the 205.30 area, or the highest level since July 2024, touched last Wednesday.