GBP/JPY drops from 167.00 as risk appetite trims, UK Inflation buzz

• GBP/JPY has sensed selling pressure while attempting to cross the 167.00 hurdle.
• The guidance from BOJ Kuroda on interest rates is a continuation of policy easing.
• BOE’s Bailey to announce a bigger rate hike to contain price pressures.

The GBP/JPY pair has dropped marginally to near 166.70 after facing hurdles around the immediate resistance of 167.00 in the Tokyo session. An ease in the risk-on impulse has weighed pressure on the pound bulls as S&P500 has dropped some gains after a firmer rebound.

The cross has remained in the grip of bulls for the past week amid rumors of the Bank of Japan (BOJ)’s intervention in the currency markets to safeguard yen against volatility. Meanwhile, Japan’s officials have started looking for the successor of BOJ’s Haruhiko Kuroda for next year, as reported by Reuters. On monetary policy guidance, BOJ Kuroda stated that “It is appropriate to continue monetary easing,” This has weakened the yen bulls further.

On the UK front, a political drama may bring sheer volatility for the pound bulls. The sudden removal of Chancellor Kwasi Kwarteng after the one proposed to cancel the plan of increasing corporate taxes to 25% has triggered political uncertainty. The move by then-UK Finance Minister Kwarteng accelerated returns on government bonds and sell-off in the equity market.

Meanwhile, Bank of England (BOE) Governor Andrew Bailey’s guidance on monetary policy has escalated the odds of further expansion in BOE-BOJ policy divergence. As reported by Reuters, BOE Bailey’s stated "We will not hesitate to raise interest rates to meet the inflation target," The central bank believes that price pressures demand stronger policy tightening measures than announced in August.

This week, the UK Consumer Price Index (CPI) data will be of utmost importance. The headline and core inflation may incline by 10 basis points each to 10% and 6.4% respectively. A return to double-digit inflation figure could trigger more headwinds for the UK economy.