GBP/JPY retreats below 211.00 as risk appetite recedes

GBP/JPY hits lows below 211.00 after rejection at the 212.00 area.
The safe-haven Yen appreciates across the board as Japan-China tensions sour market mood.
Concerns about Japan’s finances are keeping Pound’s downside attempts limited for now.

The Sterling is trading lower from the fresh long-term highs above 212.00 hit on Tuesday, returning to levels right below 211.00. The safe-haven Japanese Yen is rallying across the board with risk appetite receding, as tensions between China and Japan grow.

Beijing banned exports of dual-use goods that can be used for military purpposes to its Asian neighbour on Tuesday, in retaliation for the Japanese Prime Minister Sanae Takaichi’s comments about Taiwan.

Takaichi affirmed in November that a hypothetical Chinese attack on the island of Taiwan could trigger a military response from Japan, which caused a diplomatic rift with China, and soured the relations between the world’s second and third largest economies.

Beyond that, Bank of Japan (BoJ) Governor, Kazuho Ueda, reiterated on Monday that the bank remains committed to further monetary tightening, which provided additional support to the Yen.

In the UK, services activity data disappointed on Tuesday, as December’s final S&P Global Services PMI was revised down to 51.4, from the previously estimated 52.1.

The broader GBP/JPY trend, however, remains bullish, with the pair nearly 6% above early November lows, as market concerns about Japan’s fiscal health keep acting as headwinds for any significant Yen recovery. In December, Prime Minister Takaichi’s cabinet approved an $118 extra budget to finance a stimulus plan, which is expected to add tensions to the country’s already strained finances.