GBP/JPY corrects to near 169.00 ahead of UK CPI, bets for BOJ’s intervention soar

• GBP/JPY has dropped marginally to near 169.00 as BOJ’s intervention bets escalate.
• A continuation of dovish policy has left BOJ’s intervention as last resort to support nosediving yen.
• As per the consensus, the UK headline CPI could return to a double-digit figure.

The GBP/JPY pair has corrected gradually towards 169.00 in early Asia after printing a fresh six-year high around 170.00 on Monday. The marginal correction doesn’t resemble any reversal signal as risk sentiment is upbeat. On Monday, the asset witnessed a perpendicular upside after a north-side break of the consolidation formed in a 165.05-167.32 range after dovish guidance from the Bank of Japan (BOJ).

Considering the sheer weakness of the Japanese yen, the odds of potential intervention in the currency market by the BOJ have soared. BOJ Governor Haruhiko Kuroda is clear with his intentions of monetary policy easing to support the overall demand, therefore, intervention in FX moves is the last resort.

The USD/JPY pair smashed 149.00 despite the vulnerable performance of the US dollar index (DXY). The upside momentum in USD/JPY is still solid and may kiss the psychological hurdle of 150.00.  On Friday, Japan's Finance Minister Shun'ichi Suzuki stepped in and said that they will take decisive action against excess forex moves based on speculation. He further added that they are constantly watching FX movements with a sense of urgency.

On the UK front, the rollback of almost all tax measures announced on the mini-budget by now UK Finance Minister Jeremy Hunt has kept the pound bulls in the bullish docket. Liquidity tightening measures in the UK economy support the pound bulls but political instability has climbed to the rooftop. UK Prime Minister Liz Truss’s topple fears could dent the pound run.

Going forward, the UK Consumer Price Index (CPI) data will remain in the spotlight. 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.