GBP/JPY surged to a new high above 208 following the release of strong UK GDP data, supporting the Pound. The data may prompt the Bank of England to take a cautious approach to interest rate cuts, further boosting GBP. On the other hand, Japanese PPI inflation rose in June, but the Bank of Japan is not expected to raise rates aggressively, weighing on the Yen.
The UK economy expanded by 0.4% month-over-month in May, surpassing expectations and indicating potential Q2 growth of 0.7%. This positive data suggests that the BoE may not rush to cut interest rates, benefiting GBP. However, expectations remain high for a rate cut in August.
Despite the UK’s strong performance, GBP/JPY’s upside may be limited by Japan’s hot PPI inflation. The BoJ is unlikely to embark on a rapid tightening cycle, with only minor interest rate hikes expected in the next year. This could continue to put pressure on Yen pairs like GBP/JPY.
There is also a risk of “stealth intervention” by Japanese authorities to support the Yen, as seen in recent months. A weak Yen poses financial stability risks and could lead to unwanted inflation, prompting intervention by the BoJ.