Thursday Sees GBP/JPY Reach a New Daily Peak Above 188.00

The Japanese Yen (JPY) fell to the floorboards as the Pound Sterling (GBP) rose on market confidence that the Bank of England (BoE) is on track to begin cutting interest rates by August, while the Bank of Japan (BoJ) maintains a firmly dovish monetary policy stance for the foreseeable future. The pair's ascent toward all-time highs above 189.00 propelled the GBP/JPY to a new daily high above 188.00.

December inflation in the United Kingdom unexpectedly rose by a single basis point, but GBP bidders continue to be steadfast in their belief that the BoE will initiate the subsequent cycle of rate cuts. As per Reuters' reporting, JP Morgan expects the BoE to reduce reference rates by 75 basis points by the end of 2024, with the initial reduction commencing in August. Previously, JP Morgan anticipated that the initial reduction would occur in November.

Notwithstanding a rise in annual inflation as a whole, investors have observed a surge in price depreciations during the last quarter of 2023. This has influenced markets to anticipate that inflation in the United Kingdom will further diminish to 2% by the conclusion of the year, which is 18 months prior to the BoE's target bound for price growth being reached.

Until the spring wage growth figures are published, rate observers will refrain from purchasing yen. The Bank of Japan has unmistakably signaled that it will not raise interest rates from negative territory until wage growth accelerates substantially. The Bank of Japan (BoJ) aspires to establish a virtuous cycle in which wage growth accelerates to fuel future inflation. However, failure to achieve this would indicate that price growth will likely continue to decline.

As the Bank of Japan (BoJ) continues to base rate hikes on a positive trajectory in wage growth, investors are reluctant to bid up the Yen.