GBP/JPY rises following British GDP and Japanese inflation data

• The GBP/JPY cross regained ground after two days of losses, poised for the seventh consecutive weekly gain.
• British Q1 GDP’s revision showed no surprises and came in at 0.2% YoY.
• Japanese inflation figures unexpectedly decelerated in May.

The GBP/JPY jumped to a high of 183.87 level and then stabilized at 183.25, after experiencing two consecutive days of losses – though still on track for its seventh consecutive weekly gain. The revised British Q1 GDP figures revealed no surprises, with a year-on-year growth rate of 0.2%. On the other hand, Japanese inflation data for May unexpectedly showed a deceleration, thereby continuing to support a dovish stance by the Bank of Japan (BoJ).

Monetary policy divergence set to weaken the JPY further

On Friday, the National Statistics Office of the UK, confirmed that the GDP from the UK in Q1 expanded at an annualized rate of 0.2%, just as expected. It's worth noting that Andrew Bailey from the Bank of England (BoE), stated on Wednesday that he expects economic activity “to flatten” but that the bank will do whatever is necessary to bring inflation down. As a result of his comments, in the previous days Sterling had faced some selling pressure as traders worried about the impact of the aggressive stance of the BoE on economic activity. Friday’s GDP figures, however, brought some calm to markets.

In contrast, the Tokyo Consumer Price Index (CPI) for June displayed a lower-than-expected headline figure of 3.1% year-on-year, compared to the anticipated 3.8%. The Core CPI figure reached 3.8% (previously projected at 4.1%). The results aligned with  comments made by Governor Kazuo Ueda of the Bank of Japan (BoJ) during his Wednesday statement, when he emphasized that once inflation aligns with the Bank's forecast, he will consider a potential policy shift. The declining inflationary pressure in Japan, however, supports a more dovish stance, consequently, a less attractive Yen.

GBP/JPY Levels to watch

According to the daily chart, the GBP/JPY’s positive trajectory is intact, but the cross remains overbought, suggesting a need to consolidate gains. The Relative Strength Index (RSI) holds a positive slope above 70. At the same time, the Moving Average Convergence Divergence (MACD) prints decreasing green bars suggesting that the bullish momentum is slowly fading and possibly suggesting that a correction may be on the horizon.

On the downside, support levels line up at 183.00, followed by the 182.30 zone and the 181.00 psychological mark. On the flip side, in case of gaining more ground, the cross will face resistances at 183.70, 184.00 and 184.50.

GBP/JPY Daily chart