GBP/JPY stuck in a tight range slightly above 188.00 ahead of BoJ policy

• GBP/JPY struggles for a direction ahead of the BoJ meeting.
• No surprise is anticipated in BoJ’s meeting amid insignificant wage growth.
• The BoE could consider rate cuts if fears of a technical recession remain persistent.

The GBP/JPY pair trades inside Friday’s trading range as investors shift focus towards the monetary policy meeting by the Bank of Japan (BoJ), which will be announced on Tuesday. The BoJ is less-likely to provide roadmap about exiting the decade-long ultra-loose monetary policy.

Slower wage growth and earthquake on New Year’s Day in Japan have dampened the overall economic outlook of the economy, offering a strong argument to BoJ policymakers to extending the expansionary monetary policy stance. Therefore, no tweak in the Yield Curve Control (YCC) and no change in easy monetary policy is anticipated by market participants.

While the underlying inflation in the Japanese economy has been above 2% consistently, BoJ policymakers are less convinced for persistent inflation above the 2% target amid insignificant contribution from the labor cost index. The maintenance of a status-quo by the BoJ could build more pressure on the Japanese Yen.

On the Pound Sterling front, fears of a technical recession in the United Kingdom economy have escalated as households’ spending has been suffered significantly due to higher interest rates by the Bank of England (BoE) and persistent inflationary pressures.

The BoE could be prompted to exit from the historically aggressive interest rate stance to tame risks of economy shifting into a recession. Meanwhile, investors await for preliminary S&P Global UK PMI for January, which will be published on Wednesday.