FX.co ★ Side | GBP/JPY

In the early hours of Friday's European trading session, the GBP/JPY currency pair experienced a notable decline, settling around the 195.00 level. This downward trajectory occurred despite the release of surprisingly robust UK economic data, which typically would have bolstered the pound's value. The UK Office for National Statistics (ONS) reported a 1.0% month-over-month increase in retail sales for February, significantly surpassing market predictions of a 0.3% contraction. Furthermore, the annual retail sales figure showed a 2.2% rise, exceeding the anticipated 0.5% and the revised January figure of 0.6%. However, these positive indicators failed to translate into a corresponding strengthening of the pound against the Japanese yen. The yen, on the other hand, found support from domestic economic data indicating rising inflationary pressures in Tokyo. The Tokyo Consumer Price Index (CPI) climbed to 2.9% in March, exceeding the previous month's 2.8%. Similarly, the core CPI, which excludes volatile fresh food prices, rose to 2.4% from 2.2% in February. These figures suggest that the Bank of Japan's (BOJ) efforts to stimulate inflation are yielding results, potentially paving the way for further monetary policy tightening. This prospect of higher interest rates in Japan contributes to the yen's strength, creating resistance against the GBP/JPY cross.

Conversely, the pound faced downward pressure following the release of UK CPI data, which revealed a monthly inflation rate rebound to 0.4% in February from -0.1% in January, but fell short of the market's expectation of 0.5%. This slight miss in inflation figures tempered market optimism regarding the Bank of England's (BOE) potential for aggressive interest rate hikes. Adding to the yen's strength, Bank of Japan Governor Kazuo Ueda's recent statements indicated a commitment to continued interest rate increases if economic and price developments align with the bank's forecasts. The substantial wage increases witnessed for the third consecutive year are also contributing to sustained price pressures within Japan, further reinforcing the yen's position. Therefore, the combination of rising Japanese inflation, potential BOJ rate hikes, and slightly weaker than expected UK inflation data has contributed to the decline of the GBP/JPY pair.