GBP/JPY holds losses near 191.50 following UK inflation data

• GBP/JPY remains subdued following the release of UK inflation data on Wednesday.
• UK Consumer Price Index rose 3.0% YoY in January, remaining well above the BoE’s 2% target.
• Japan’s trade deficit increased to JPY 2,758.78 billion in January as annual imports surged to a 26-month high.

GBP/JPY remains under pressure near 191.50 during early European trading on Wednesday, following the release of UK inflation data. The UK’s Office for National Statistics (ONS) reported that the Consumer Price Index (CPI) rose 3.0% year-over-year (YoY) in January, up from December’s 2.5% increase and exceeding market expectations of 2.8%. The reading remains well above the Bank of England’s (BoE) 2% target.

The monthly CPI inflation dipped to -0.1% in January from +0.3% in December, outperforming market forecasts of -0.3%. Meanwhile, Core CPI, which excludes volatile food and energy prices, climbed 3.7% YoY, aligning with market expectations and accelerating from December’s 3.2%. Additionally, services inflation surged to 5.0% YoY in January, up from 4.4% in the previous month.

The GBP/JPY pair weakens as the Japanese Yen (JPY) gains traction amid growing expectations that the Bank of Japan (BoJ) will continue raising interest rates to combat persistent inflation. However, the JPY’s upside may be capped as investors digest weaker-than-expected economic data.

Japan’s core Machinery Orders—excluding ships and electric power—fell 1.2% month-on-month in December 2024, marking the steepest decline in four months and reversing November’s 3.4% growth. The reading also defied market projections for a modest 0.1% gain.

Japan’s trade deficit widened sharply to JPY 2,758.78 billion in January from JPY 1,766.54 billion a year earlier, exceeding market estimates of JPY 2,100 billion. Imports surged 16.7% YoY to a 26-month high, significantly outpacing December’s 1.7% growth and surpassing forecasts of 9.7%. Exports, however, expanded at a slower 7.2% YoY, marking the fourth consecutive month of growth but missing expectations of 7.9%.