GBP/JPY steady near weekly highs as Yen weakens on softer Tokyo inflation

The British Pound (GBP) trades firmer against the Japanese Yen (JPY) on Friday, as softer-than-expected Tokyo Consumer Price Index (CPI) data weigh on the Yen and revive doubts over the pace of policy normalisation by the Bank of Japan (BoJ). At the time of writing, GBP/JPY is trading around 212.16, hovering near the upper end of this week’s trading range.

Data released by the Statistics Bureau of Japan showed that inflation slowed in January. The Tokyo CPI rose 1.5% YoY, down from 2.0% in December, while both the CPI excluding fresh food and energy and the CPI excluding fresh food decelerated to 2.0% YoY, missing market forecasts of 2.3% and slowing from 2.2% in the prior month.

Following the data, a report published by BHH noted that the BoJ can afford to remain patient before resuming its rate-hiking cycle. The note added that the swaps market has trimmed the probability of a March rate hike to around 13%, from about 20% earlier this week, and now implies just over a 60% chance of a rate increase in April. BHH said its base case remains for the BoJ to deliver its next rate hike at the April 28 meeting.

Traders also digested a mixed batch of Japanese labour and consumption data released earlier in the day. Japan’s Unemployment Rate held steady at 2.6% in December.

Large Retailer Sales rose 2.0% YoY, slowing sharply from 5.0% in the previous month, while Retail Sales fell 0.9% YoY, missing expectations for a 0.7% increase and easing from 1.0% in the prior month.

On a monthly basis, seasonally adjusted Retail Sales dropped 2.0%, reversing the 0.6% rise seen in November.

Looking ahead, focus turns to the Bank of England’s (BoE) interest rate decision scheduled for February 5. The central bank is widely expected to keep rates unchanged at 3.75% as UK inflation remains well above the 2% target. Data released earlier this month showed headline CPI rose to 3.4% YoY from 3.2%, while core inflation held steady at 3.2%.