GBP/JPY drops sharply to near 161.00 as Tokyo Inflation meets expectations

• GBP/JPY has dropped firmly to near 161.00 amid a higher-than-anticipated Tokyo inflation report.
• Annual headline Tokyo inflation has landed at 4.4% while core CPI is released at 3.0%.
• The BoE is expected to announce a 50 bps interest rate hike to 4.0% next week.

The GBP/JPY pair has slipped sharply to near 161.00 as the Statistics Bureau of Japan has reported a higher-than-anticipated Tokyo inflation report for January. The annual headline Consumer Price Index has landed at 4.4% in line with the expectations and higher than the former release of 4.0%. Tokyo’s inflation that excludes food and energy prices has landed at 3.0%, higher than the estimates of 2.9% and the prior release of 2.7%.

The economic data indicates an overall boost in Tokyo’s inflation as the price index is not only supported by firmer oil and energy prices but also been supported by rising prices of Durable Goods. Although Tokyo’s inflation is constantly rising, it doesn’t bolster the chances of an exit from an ultra-loose monetary policy by the Bank of Japan (BoJ).

Earlier, Japanese officials considered the context of an exit from expansionary monetary policy, however, BoJ Governor Haruhiko Kuroda confirmed that the central bank “will resolutely keep monetary environment easy.” Kuroda added that “the BoJ aims to regain market functionality by tweaking yield curve control operations while maintaining an easy monetary environment.

Meanwhile, the Pound Sterling bulls are likely to be impacted by commentaries from Bank of England (BoE) policymakers about the first interest rate decision of CY2023 to be taken by BoE Governor Andrew Bailey next week. United Kingdom’s double-digit inflation is likely to call for a higher interest rate hike. According to a poll from Reuters, Investors are mostly betting on another half percentage-point increase to 4.0% and that Bank Rate will peak at 4.5% soon.

Talking about UK’s business conditions, Business confidence in Britain has sunk to its lowest level since the global financial crisis, according to a survey of accountants, amid persistently high inflation and fears that the country is already in a recession. The Institute of Chartered Accountants in England and Wales said Thursday that its latest monitor of business sentiment dropped to an index reading of -23.4, the weakest since 2009, as reported by Bloomberg.