GBP/JPY hovers above 159.00 amid strong Japan inflation, pre-UK Retail Sales anxiety

• GBP/JPY fades the previous day’s recovery moves but eyes the first weekly gain in four.
• Japan’s National CPI rose to the highest since 2014 in April.
• Brexit woes, cautious sentiment test the upside momentum ahead of the key UK data.

GBP/JPY retreats from daily high as firmer Japan inflation numbers test buyers during Friday’s sluggish Asian session. Also keeping the pair pressured is the anxiety ahead of the UK Retail Sales for April, considering the recently mixed UK data.

Japan’s National Consumer Price Index (CPI) for April rose to the highest levels since 2014, to 2.5% YoY versus 1.5% expected and 1.2% prior. On the same line were the numbers for National CPI ex Food, Energy that reversed the -0.7% prior and crossed the -0.9% forecast to 0.8% YoY.

It’s worth noting that the market’s cautious optimism helped the cross-currency pair to recover the previous day, after posting the heaviest daily fall since March 2020 on Wednesday.

That said, improvement in China’s covid conditions and Shanghai’s plan of gradual unlock, backed by zero covid cases outside the quarantine area in recent days, keep the market sentiment positive. Also favoring the yen prices were the softer yields on repeated Fedspeak and softer US data.

On the other hand, fears of a spat between the European Union (EU) and the UK over the Northern Ireland Protocol (NIP) challenge the GBP/JPY buyers. Also fears of growth and inflation, as well as doubts over the monetary policy divergence between the Bank of Japan (BOJ) and the Bank of England (BOE), weigh on the quote.

Amid these plays, Wall Street closed mixed and the yields were softer, taking down the USD with them, whereas the S&P 500 Futures print mild gains by the press time.

Moving on, the UK’s Retail Sales for April, expected -7.2% YoY versus 0.9% prior, will be important for the GBP/JPY traders. Also crucial will be the yields and Brexit headlines amid a light calendar elsewhere.

Technical analysis

A bear cross of the 21-DMA over the 50-DMA joins a gradual downward trajectory since late April to keep GBP/JPY sellers hopeful until the quote stays beyond 161.00.