GBP/JPY marches towards 181.00 on upbeat UK Retail Sales, dovish BoJ concerns

• GBP/JPY cheers upbeat UK data, chatters about BoJ inaction to snap four-day downtrend.
• UK Retail Sales improves to -1.0% YoY in June versus -1.5% expected, -2.1% prior.
• Disappointment from UK GfK sentiment gauge, British by-elections prod pair buyers.
• Japan inflation, yields also challenge bulls ahead of next week’s BoJ monetary policy meeting announcements.

GBP/JPY refreshes intraday high near 180.90 during the first positive day in five amid Friday’s early European session as the UK Retail Sales impressed the British Pound (GBP) buyers. Adding strength to the cross-currency pair’s upside momentum could be the dovish bias surrounding the Bank of Japan (BoJ) ahead of the next week’s monetary policy meeting.

UK Retail Sales for June improved to -1.0% YoY versus the market expectations of -1.5% and -2.1% prior. That said, the monthly print jumps to 0.7% for the said month compared to 0.2% expected and 0.1% prior (revised). Furthermore, Retail Sales ex-Fuel, also known as the Core Retail Sales, rose to -0.9%      YoY versus analysts’ estimations of -1.6% and -1.9% previous readings (revised).

Earlier in the day, the UK GfK Consumer Confidence for July slumped to -30.0 from -24.0, marking the first decline since January. Also challenging the GBP/JPY buyers during the first positive day are the by-elections in Britain as the ruling Conservatives recently lost two major seats, suggesting hardships for the 2024 national elections.

On the other hand, in the latest Reuters poll conducted between July 10 and 19, more than 75% of respondents favor the BoJ’s inaction during the next week’s monetary policy meeting. In doing so, the Japanese central bank won’t even alter the Yield Curve Control (YCC) policy, signals the survey report.

That said, Japan inflation per the National Consumer Price Index (CPI), for June rose to 3.3% YoY from 3.2% versus 3.5% expected, which in turn prods the dovish bias about the BoJ and the GBP/JPY bulls. Further details unveil that the National CPI ex Fresh Food matches 3.3% YoY forecasts, improving from 3.2% prior, whereas the National CPI ex Food, Energy eases to 4.2% expected figures compared to 4.3% previous readings.

On Thursday, the Japanese government announced a downward revision of the Asian major’s Financial Year (FY) 2023-24 growth forecasts to 1.3% versus the previously expected 1.5% figures. Also, Japan Prime Minister (PM) Fumio Kishida defends the dovish concerns about the Bank of Japan (BoJ) by showing readiness to create a society where wage hikes become a norm.

Against this backdrop, the Wall Street benchmark closed in the red amid the downbeat performance of energy and technology shares, which in turn exerts downside pressure on Japan’s Nikkei 225 but the S&P500 Futures remain indecisive after reversing from the yearly high. Further, the US Treasury bond yields refreshed their weekly highs the previous day.

Having witnessed the initial market reaction for today’s scheduled top-tier data from Japan and the UK, respectively the inflation and Retail Sales, the GBP/JPY pair traders should pay attention to the bond market moves and risk catalysts for intraday directions. However, a cautious mood ahead of next week’s BoJ monetary policy meeting announcements may restrict the quote’s moves.

Technical analysis

GBP/JPY portrays a head-and-shoulders bearish chart formation with a neckline surrounding 179.90-85, a break of which will confirm the cross-currency pair’s theoretical south-run targeting 175.70. The corrective bounce, however, remains elusive unless crossing a one-month-old descending resistance line, around 181.25 by the press time.