The GBP/JPY pair has been steadily rising as market sentiment improves, leading to reduced flows towards the safe-haven Japanese Yen. Positive lending data in the UK indicates that credit remains ample, while the BRC Shop Price Index shows disinflation in the UK, although experts believe it is not enough to prompt the Bank of England (BoE) into immediate action.
On Tuesday, GBP/JPY traded over a third of a percentage point higher, hovering just above 197. This increase followed a sharp correction the previous day when the pair dropped from a peak of 200 to the low 193s. The sudden decline was attributed to Japanese authorities intervening in the Forex markets to support the depreciating Yen.
Despite speculation, Japan’s top currency diplomat, Masato Kanda, did not confirm this intervention and stated that the Ministry of Finance would release figures on currency intervention at the end of May. He emphasized the risks of excessive Yen weakening and the need for appropriate actions on foreign exchange movements.
The rise in GBP/JPY is believed to be a result of “mean reversion” rather than macroeconomic data releases. The positive market sentiment, driven by tech earnings, upbeat GDP releases in Europe, and easing geopolitical concerns, has also contributed to the Yen’s weakening. The interest rate differential between the UK and Japan favors a bullish outlook for GBP/JPY, with the BoE unlikely to cut rates soon due to high services inflation in the UK.
Minor data releases such as Japanese housing data and UK lending data had little immediate impact on GBP/JPY, which continued to float higher. The UK lending data reflected ample lending and loose credit conditions, making it less likely for the BoE to rush into rate cuts. The UK inflation data, particularly the CBI Shop Price Index, showed disinflationary trends in April. However, analysts believe this is unlikely to prompt the BoE to cut rates early, as they are more concerned with high and sticky services inflation.
In conclusion, the GBP/JPY pair is influenced by market sentiment, lending data, and inflation trends in both the UK and Japan. While fluctuations may occur based on minor data releases, the overall outlook remains positive for GBP/JPY, with analysts expecting the first rate cut to occur in August.