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GBP/JPY Regains 184.00 Despite Deteriorating UK Inflation Forecasts, As Attention Shifts To Japan GDP And BoE News
GBP/JPY remains defensive following a two-day losing trend and recovers from a one-week low. Despite September's hiccup, UK FinMin Hunt anticipates decelerating inflation, posing a challenge to BoE rate hikes. The expansion of the Japan Monetary Base in August suggests the need for a hawkish BoJ. The BoE Monetary Policy Report Hearings and Japan's Q2 GDP in 2023 will be crucial for a fresh impetus.
During Monday's Asian session, GBP/JPY drifts above 184.00 while struggling to defend the early-day rebound from a one-week low. In doing so, the cross-currency combination justifies the contradictory headlines about the United Kingdom and Japan amid sluggish markets caused by the Labour Day holiday in the United States.
According to Reuters, UK Finance Minister Jeremy Hunt stated over the weekend, "We are on track to halve inflation this year, and by sticking to our plan, we will reduce the burden on families and businesses alike." The policymaker also told the BBC that he anticipates an inflationary blip in September, but that he also expects inflation to decline to around 5% as predicted by the Bank of England (BoE).
The same adds to the recent pessimism regarding the BoE's rate increase and prompts the GBP/JPY to recover. However, the revised British economic data released on Friday, combined with the UK's persistent inflation, keeps buyers optimistic.
In contrast, the most recent Japan Monetary Base data for August indicates an increase in liquidity with a YoY growth of 1.2% compared to -1.2% previously. Despite cautious optimism in the market and inactive bond markets due to the US holiday, the market expects the Bank of Japan (BoJ) to defend Japanese Yen (JPY) purchasers with hawkish policies.
It is worth noting that BoJ policymakers have been defending ultra-easy monetary policy and placing a floor under the GBP/JPY exchange rate, particularly when BoE Officials are hawkish.
In response to these manoeuvres, the yields on benchmark 10-year US Treasury bonds have declined for two consecutive weeks, to 4.18 percent at the latest. In addition, Wall Street benchmarks have improved in recent days, despite Friday's lethargic close, and S&P 500 Futures have posted modest gains as of press time.
Moving forward, the BoE Monetary Policy Report Hearings and Japan's second-quarter (Q2) Gross Domestic Product (GDP) will be essential for direction clarity. Should Japanese growth data improve and BoE policymakers sound cautious, the bear could gain control of the GBP/JPY.
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