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• GBP/JPY finds a temporary support near 198.00 as the rally in the Japanese Yen hits a pause.
• The US government shutdown has increased the safe-haven demand of the Japanese Yen.
• BoE’s Breeden delivers dovish interest rate guidance, citing economic risks.

The downfall in the GBP/JPY pair hits a pause after a three-day losing streak around 198.00 during the Asian trading session on Thursday. However, the outlook of the pair remains bearish as the safe-haven appeal of the Japanese Yen (JPY) has increased, following the United States (US) government closure.

Washington went into darkness on Tuesday midnight after government funding stopped as Republicans failed to persuade Democrats to support the stopgap bill in voting at the House of Senate. This has forced investors to shift to the safe-haven fleet.

Another reason behind the strength in the Japanese Yen is firm expectations that the Bank of Japan (BoJ) will remain on its path towards policy normalization. The BoJ Summary of Opinions (SOP) for the September meeting showed that Japan’s central bank will continue aiming towards increasing interest rates if the economy and prices move in line with forecasts.

However, BoJ’s SOP showed that officials are still concerned about a potential economic slowdown due to tariffs imposed by the US, while they were confident that its impact would be temporary.

Meanwhile, the Pound Sterling (GBP) is broadly under pressure as Bank of England (BoE) Deputy Governor Sarah Breeden has argued in favour of reducing interest rates, citing that higher interest rates for longer could harm economic prospects and push inflationary pressures below the central bank’s target of 2%. “Risks in holding policy too tight for too long could pull inflation below target,” Breeden said on Tuesday.

BoE’s Breeden was one of seven Monetary Policy Committee (MPC) members who voted to hold interest rates steady at 4% in the September policy meeting.

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