GBP/JPY under pressure amid soft UK inflation and hawkish BoJ remarks
Press Hub UCapital
Share:
The GBP/JPY pair has extended its losses, trading near 192.00 during Wednesday’s early European session. A combination of weaker UK inflation data and a strengthening Japanese Yen has weighed on the cross, erasing gains from the previous trading day.
UK inflation misses expectations
The Pound Sterling weakened after the UK Consumer Price Index (CPI) for December came in below market expectations. Year-over-year inflation rose by 2.5%, a decline from November’s 2.6% and falling short of the projected 2.7%. Despite this slowdown, inflation remained above the Bank of England’s (BoE) 2% target, keeping the central bank’s policy stance under scrutiny.
Core CPI, which excludes volatile food and energy prices, increased by 3.2% annually, down from 3.5% in November and below the forecast of 3.4%. Services inflation also saw a sharp drop, falling to 4.4% year-over-year from November’s 5%. On a monthly basis, CPI edged higher to 0.3%, up from 0.1% in November but still below the expected 0.4%. This weaker inflation outlook has dampened expectations for further BoE rate hikes, pressuring the Pound.
Hawkish signals strengthen the Japanese Yen
The Japanese Yen gained traction following hawkish remarks from Bank of Japan (BoJ) Governor Kazuo Ueda. Speaking at the BoJ branch managers' meeting, Ueda emphasized the central bank’s readiness to adjust monetary policy, stating, “We will raise rates and adjust the degree of monetary support if improvements in economic and price conditions continue.” He also confirmed that a decision could come next week as the bank monitors developments in the US economy.
Adding to the Yen’s strength, Japan’s Finance Minister Katsunobu Kato expressed concern over rapid, one-sided currency movements, signaling potential intervention. Kato stressed the importance of stable exchange rates and noted alarm over speculative activity driving market volatility.
Outlook for GBP/JPY
The interplay of diverging monetary policy expectations between the BoE and the BoJ is likely to remain a key driver for GBP/JPY. With UK inflation slowing and BoJ signaling a potential shift, further downside pressure on the pair could emerge. Investors will closely watch next week’s BoJ decision for clarity on the Yen’s trajectory and potential updates from the BoE to gauge the Pound’s outlook.
UK inflation misses expectations
The Pound Sterling weakened after the UK Consumer Price Index (CPI) for December came in below market expectations. Year-over-year inflation rose by 2.5%, a decline from November’s 2.6% and falling short of the projected 2.7%. Despite this slowdown, inflation remained above the Bank of England’s (BoE) 2% target, keeping the central bank’s policy stance under scrutiny.
Core CPI, which excludes volatile food and energy prices, increased by 3.2% annually, down from 3.5% in November and below the forecast of 3.4%. Services inflation also saw a sharp drop, falling to 4.4% year-over-year from November’s 5%. On a monthly basis, CPI edged higher to 0.3%, up from 0.1% in November but still below the expected 0.4%. This weaker inflation outlook has dampened expectations for further BoE rate hikes, pressuring the Pound.
Hawkish signals strengthen the Japanese Yen
The Japanese Yen gained traction following hawkish remarks from Bank of Japan (BoJ) Governor Kazuo Ueda. Speaking at the BoJ branch managers' meeting, Ueda emphasized the central bank’s readiness to adjust monetary policy, stating, “We will raise rates and adjust the degree of monetary support if improvements in economic and price conditions continue.” He also confirmed that a decision could come next week as the bank monitors developments in the US economy.
Adding to the Yen’s strength, Japan’s Finance Minister Katsunobu Kato expressed concern over rapid, one-sided currency movements, signaling potential intervention. Kato stressed the importance of stable exchange rates and noted alarm over speculative activity driving market volatility.
Outlook for GBP/JPY
The interplay of diverging monetary policy expectations between the BoE and the BoJ is likely to remain a key driver for GBP/JPY. With UK inflation slowing and BoJ signaling a potential shift, further downside pressure on the pair could emerge. Investors will closely watch next week’s BoJ decision for clarity on the Yen’s trajectory and potential updates from the BoE to gauge the Pound’s outlook.