GBP/JPY fluctuates above 163.00 as investors await BOJ and BOE monetary policy decisions

During the Tokyo session, the GBP/JPY pair is fluctuating erratically between 163.12-163.34. The asset's puzzling fluctuation has persisted throughout the past week. Prior to the outcome of the Bank of Japan (BOJ) and Bank of England (BoE) monetary policy meetings, investors are attempting to make a well-informed decision, causing the cross to move sideways (BOE).

The declining yen is a source of concern for the Japanese economy as it forces manufacturing capacity that are largely dependent on global inputs to cease or be reduced. This will compel the Bank of Japan to adopt a neutral position and refrain from infusing additional cash into the economy. As Japanese policymakers consider that the current value of the yen does not reflect its fundamentals and are poised to meddle in FX movements, the case for transitioning to a 'neutral' policy is strengthened.

Notably, Japanese markets are closed for Respect for Aged Day, and British markets are closed for the Bank Holiday. Consequently, mediocre performance is anticipated from the cross.

On the UK front, the inflation data released last week will help the Bank of England (BOE), but will not be enough to reduce the anticipated interest rate hike. Despite rising energy prices, the headline Consumer Price Index (CPI) for the United Kingdom came in at 9.9% instead of the anticipated 10.2%. BOE Governor Andrew Bailey is anticipated to announce a 50 basis point rate increase (bps).

A one-time decrease in the inflation rate is insufficient to convince the BOE to tone down its hawkish stance. A sequence of decelerations in the inflation rate will justify a change in policy approach.