GBP/JPY sees an upside above 163.00 ahead of UK Employment

• GBP/JPY is eyeing a fresh upside above 163.00 as the focus shifts to UK labor market data.
• A decline in the UK Employment cost index and a higher Unemployment Rate would trim inflation expectations.
• BoJ Ueda is expected to scrap Yield Curve Control (YCC) and ultra-loos monetary policy gradually.

The GBP/JPY pair is gauging an intermediate cushion above 162.00 in the early Asian session after sensing restrictions in the upside momentum above 163.00. The cross is expected to resume its upside journey as investors are worried about the United Kingdom’s labor cost index, which has kept the Bank of England (BoE) busy with high inflation affairs for the past one year.

The release of the UK’s Employment data will be the key trigger for the Pound Sterling ahead. As per the consensus, the Claimant Count Change (Feb) will drop by 12.4K, lower than the former release of 12.9K. Three-month Unemployment Rate is expected to increase to 3.8% from the prior release of 3.7%.

The major catalyst will be the Average Earnings data, which is expected to decline to 5.7% vs. the prior release of 5.9%. Investors should be aware of the fact that higher employment costs and stubborn food price inflation in the UK economy have been driving inflationary pressures. And, now a decline in the labor cost index will delight BoE Governor Andrew Bailey, who is going through sleepless nights in designing a roadmap for decelerating the double-digit figure inflation.

It is worth noting that the impact of the Silicon Valley Bank (SVB) collapse is not restricted to the United States. In a joint statement from the UK Treasury and the Bank of England (BOE), the UK Finance Minister, Jeremy Hunt, said on Monday that the “deposits will be protected, with no taxpayer support.” The UK authorities confirmed that HSBC bank agreed to rescue the Silicon Valley Bank’s (SVB) UK arm. UK Hunt further added, "No other UK banks are directly materially affected by these actions."

On the Tokyo front, after an unchanged monetary policy announcement by ex-Bank of Japan (BoJ) Governor Haruhiko Kuroda, investors are shifting their focus toward the commentary from BoJ Kazuo Ueda over the Yield Curve Control (YCC) and a shift to restrictive monetary policy.

Senior Economist at UOB Group Alvin Liew is of the view that “An exit from the YCC and negative interest rates is inevitable for Japan, the question is how Ueda will execute his plan. We believe Ueda will proceed at a gradual, well-telegraphed pace, and not a sharp and sudden reversal. We see it in two broad steps, 1) Protracted adjustment to its forward guidance on YCC and interest rates (Apr to Dec 2023) and 2) Scrapping of YCC and lifting of the negative policy rate in early 2024.”