GBP/JPY:Vulnerable Below 164.0 Amid Positive UK Economic Outlook

5 Nis 2023

The GBP/JPY pair is poised to experience further weakness below 164.00, despite a promising UK economic outlook. The sentiment among UK businesses has improved as political instability and inflationary pressures appear to be easing. However, any positive impact on Japan's inflation caused by external factors could cause problems for BoJ policymakers.

The GBP/JPY cross is struggling to stay above the immediate support level of 164.00 during the Tokyo session, despite the Bank of England's (BoE) efforts to curb inflation through quantitative restrictions. BoE policymakers believe that the surge in February's inflation was a one-time occurrence, and that inflation will fall below 4% by the end of the year as energy costs decline. However, the robust economic outlook suggests otherwise.

According to a report by Reuters on Tuesday, the British Chambers of Commerce (BCC) said that most UK businesses expect sales to increase in the coming year, a positive development from late 2022, despite experiencing no sales growth in the past three months. The BCC also noted that "business sentiment improved as political turmoil and inflationary pressures showed some signs of easing" after a slump in business confidence in the latter half of 2022.

Meanwhile, BoE Chief Economist Huw Pill cautioned on Tuesday that inflation prospects still require careful consideration due to the potential persistence of domestically generated inflation. He also stated that "wage developments, particularly higher frequency indicators of current momentum, appear to be easing."

On the Tokyo front, the Japanese Yen remains subdued despite rising oil prices. While this could increase Japan's inflation, any contribution to inflation through external forces would create problems for Bank of Japan (BoJ) policymakers.