GBP/JPY scales higher to test 162.50 as BOJ maintains a neutral stance on interest rates

• GBP/JPY holds above 162.00 on unchanged monetary policy by the BOJ.
• Further guidance from the BOJ indicates a continuation of an ultra-loose monetary policy.
• Pound bulls will have an upper hand on rising hawkish BOE bets.

The GBP/JPY pair has advanced sharply above 162.00 and has printed an intraday high of 162.51 on an unchanged monetary policy stance by the Bank of Japan (BOJ). The BOJ has continued its ultra-loose monetary policy stance to shore up inflation and aggregate demand in its economy. The decision of adopting a neutral stance on policy is akin to the market consensus.

The dictations from BOJ Governor Haruhiko Kuroda to ease policy further if required in order to return to pre-pandemic growth rates may bring further weakness in the Japanese yen. On the inflation front, the economy is facing the headwinds of higher commodity prices, which are hurting the real income of the households. Although weakening yen will elevate corporate profits as exports will be cheaper but its impact on the economy will also elevate. On the inflation front, Board's core Consumer Price Index (CPI) median forecast for fiscal 2022 at +1.9% (not +0.9%) vs. +1.1% in Jan, still not able to compel the BOJ for a dovish tone.

Meanwhile, pound bulls have strengthened on expectations of interest rate elevation by the Bank of England (BOE) next week. The BOE is expected to raise its interest rates by 25 basis points (bps) in order to tame the galloping inflation in the UK. It is worth noting that the BOE raised its interest rates by 50 bps in its last monetary policy meeting.