GBP/JPY stretches recovery above 160.0 ahead of BoJ Kuroda’s speech

• GBP/JPY has climbed above 160.00 as UK’s retail demand remained robust.
• Upbeat UK retail demand could keep inflation above double-digit figure.
• Going forward, the speech from BoJ Ueda will be keenly watched.

The GBP/JPY pair has extended its recovery above 160.00 in the Asian session. The cross has get strength after the release of the better-than-anticipated United Kingdom Retail Sales data. Monthly Retail Sales (Fed) data accelerated firmly by 1.2%, higher than the consensus of 0.2% and the former release of 0.9%. UK’s annual Retail Sales data contracted by 3.5% while the street was anticipating a contraction of 4.7%.

Upbeat retail demand by UK households could propel fears of persistent inflation as firms would be motivated to come up with a higher Producer Price Index (PPI), which could increase the burden on households. Contrary to that, Bank of England (BoE) Governor Andrew Bailey is of the view that “There is evidence of encouraging progress on inflation, we have to be vigilant,” cited while interviewing with BBC on Friday.

Last week, the BoE hiked rates by 25 basis points (bps) to 4.25% despite global banking turmoil. Inflationary pressures in the UK zone are extremely elevated led by higher food price inflation and a shortage of labor. An inflation rate is still in the double-digit figure, therefore, the BoE had no other alternative than to elevate rates further.

On Friday, BoC member Catherine Mann said, that she voted at this week’s meeting for a 25bp rate hike instead of a bigger increase, motivated in part by the fact that inflation expectations began to moderate, reflecting that monetary policy is having an effect.

On the Tokyo front, the Japanese Yen will remain in action ahead of the speech from Bank of Japan (BoJ) novel Governor Kazuo Ueda. A dovish stance is expected from the BoJ as the central bank is working on keeping the inflation rate above 2%. The majority of the contribution to higher Japan’s inflation is coming from higher import prices. Therefore, more push for inflation would be required through monetary tools.