GBP/JPY corrects near 169.00 ahead of UK CPI, BOJ intervention bets soar
- GBP/JPY fell slightly to near 169.00 as BOJ intervention bets intensify.
- Continued accommodative policy left BOJ intervention as a last resort to support the yen in a dive.
- The consensus is that the UK’s headline CPI could drop back into the double digits.
GBP/JPY gradually corrected towards 169.00 in early Asia after hitting a new six-year high around 170.00 on Monday. The marginal correction does not look like any reversal signal as risk sentiment is bullish. On Monday, the asset saw a perpendicular rise after a break on the north side of the consolidation formed in a range of 165.05-167.32 following dovish advice from the Bank of Japan (BOJ).
Given the very weakness of the Japanese yen, the odds of a possible intervention by the BOJ in the foreign exchange market have skyrocketed. BOJ Governor Haruhiko Kuroda is clear on his intentions to ease monetary policy to support aggregate demand, therefore intervention in currency movements is the last resort.
USD/JPY smashed 149.00 despite the weak performance of the US Dollar Index (DXY). USD/JPY’s bullish momentum is still strong and may break through the psychological barrier of 150.00. On Friday, Japanese Finance Minister Shun’ichi Suzuki stepped in and said he would take decisive action against excessive currency movements based on speculation. He further added that they constantly monitor FX moves with a sense of urgency.
On the UK front, the rollback of almost all fiscal measures announced in the mini-budget by current UK Finance Minister Jeremy Hunt has kept the pound’s bulls on the bullish chart. Liquidity-tightening measures in the UK economy are supporting pound bulls, but political instability has reached fever pitch. British Prime Minister Liz Truss’ overthrow fears could hurt the race for the pound.
Going forward, UK Consumer Price Index (CPI) data will remain in the spotlight. Headline inflation and core inflation could decline by 10 basis points each to 10% and 6.4% respectively. A return to double-digit inflation could trigger more headwinds for the UK economy.