GBP/JPY tumbles to near 160.20 as BoJ to review the impact of decade-long easy policy

• GBP/JPY has witnessed a sell-off and has dropped vertically to near 160.20.
• The announcement of the review of secular loose monetary policy by the BoJ has strengthened the Japanese Yen.
• Pessimism for Pound Sterling and the UK economy seems over, which will be brighter for London in CY2023.

The GBP/JPY pair has sensed immense pressure after failing to shift its auction profile above the immediate resistance of 161.00 in the early Asian session. The cross has slipped sharply to near 160.40 as the Bank of Japan (BoJ) has announced that it will review the negative impact of ultra-loose monetary policy from a secular period next week, reported Yomiuri.

Chatters over exit from decade-long ultra-loose monetary policy in the Japanese region has gained strength amid difficulties in expanding wages and supporting the Japanese yen against the strengthening US Dollar. Earlier, Michio Saito, Director-General of the Financial Bureau at Japan’s Ministry of Finance (MoF), said in a statement early Wednesday, “interest rates remain low but the current situation won't last indefinitely.”

On the United Kingdom front, the UK economy faced sheer volatility amid poor risk-management systems by commercial banks and political instability led by the debacle of former Prime Ministers Boris Johnson and Liz Truss in CY2022. The current year seems brighter for the Pound Sterling after current UK PM Rishi Sunak held a higher position.

In the view of economists at MUFG Bank, we may have reached “peak pessimism” for the UK and the Pound. Much greater political stability this year than last is one factor here and we can very likely assume that PM Sunak will bring greater credibility after the turmoil of 2022. “Another consequence of having Rishi Sunak at No. 10 is the prospect of better relations with the EU and with that a possible deal to break the deadlock regarding the Northern Ireland Protocol.”

On the economic data front, investors will keep an eye on the UK Production data, which is scheduled for Friday. On an annual basis, Industrial Production is expected to contract by 3.0% and Manufacturing Production may contract by 4.8%. This might impact harshly on the United Kingdom economy but will delight the Bank of England (BOE) as it will trim inflation projections.