GBP/JPY struggles around 159.00 as focus shifts to Japan’s Inflation

• GBP/JPY is oscillating around 159.00 as investors await Japan’s inflation release for fresh cues.
• The cross surrendered BoJ’s unchanged policy-inspired gains after Kuroda’s commentary.
• Lower-than-projected UK inflation might not delight the BoE as the median rate is excessively skewed.

The GBP/JPY pair is displaying topsy-turvy moves around the critical hurdle of 159.00 in early Asia. The cross has shifted into a rangebound territory after a downside move from Wednesday’s high above 161.50. The asset witnessed a steep fall as GBP/JPY surrendered Bank of Japan’s (BoJ) unchanged policy-inspired gains despite dovish commentary from BoJ Governor Haruhiko Kuroda.

GBP/JPY surrendered gains at a decent pace when BoJ Kuroda, after keeping the interest rate at -0.10% and the 10-year Japanese Government Bonds (JGBs) around 0% steady, commented that there is “no need to further expand bond target band.” He further added that Japan’s economy is still on the path towards recovery from the pandemic and the BoJ is aiming to achieve a 2% inflation target sustainably, stably in tandem with wage growth.

Meanwhile, analysts at MUFG claim that the Yen sell-off should prove temporary and reiterates a bullish outlook for the JPY in the year ahead on the grounds that the upcoming end to Governor Kuroda’s term at the end of April will continue to encourage speculation over a shift in policy under new leadership. They further added that “We expect market participants to remain skeptical over the sustainability of YCC policy settings.

Further guidance on the Japanese Yen will arise from the National Consumer Price Index (CPI) data, which will release on Friday. As per the consensus, the annual headline CPI (Dec) is expected to accelerate to 4.4% vs. the former release of 3.8%. The core inflation that excludes oil and food prices is seen higher at 2.9% against 2.8% released earlier.

On the United Kingdom front, headline inflation softening to 10.5% from the expectations of 10.6% is not going to delight the Bank of England (BoE) as the current CPI is extremely far from the median rate. The street believes that BoE Governor Andrew Bailey might hike rates somewhat more than earlier expectations.