GBP/JPY extends downside below 174.00 on hopes of BoJ’s stealth intervention

• GBP/JPY has extended its downside to near 173.58 amid solid hopes of a BoJ’s stealth intervention.
• BoJ Ueda is consistently pumping liquidity into the economy to keep inflation steadily above 2%.
• Higher food inflation and labor shortages have remained major catalysts behind sticky UK inflation.

The GBP/JPY pair has picked significant offers and has extended its reversal move to near 173.58 in the late European session. A fresh seven-year high made by the cross has been followed by profit-booking as the Bank of Japan (BoJ) is expected to make a stealth intervention in the currency market to provide some cushion to the Japanese Yen, which is facing the heat of expansionary monetary policy.

According to the latest Reuters report, bets against the Japanese Yen have risen to $8.6 billion equivalent, which was a similar level when Japan’s authorities intervened last year.

To keep Japan’s inflation steadily above 2%, BoJ Governor Kazuo Ueda is consistently pumping liquidity into the economy so that the overall demand can be improved. Japan’s inflation has been imported cost-push driven, which lacks the traits of remaining steady. Steady inflation should be fueled by solid overall demand and higher wages and for which BoJ Ueda has been maintaining an ultra-dovish policy.

Later this week, Japan’s Q1 Gross Domestic Product (GDP) will remain in the spotlight. As per the preliminary report, Thursday’s GDP data is expected to expand by 0.5% vs. prior expansion of 0.4% on a quarterly basis. Annualized Q1 GDP is seen steady at 1.6%.

The Pound Sterling has shown a clear exhaustion in the upside momentum despite the Bank of England (BoE) being bound to raise interest rates further to keep pressure on United Kingdom’s stubborn inflation. Higher food inflation and labor shortages have remained major catalysts behind sticky UK inflation for more than the past year.

Investors should note that BoE Governor Andrew Bailey has already raised interest rates consecutively 12 times and more interest rate hikes cannot be ruled out to bring down price pressures.