GBP/JPY scales 8 1/2-year peak after BoJ as UK inflation slows

The GBP/JPY currency pair extended the gains from the past six trading days on Wednesday, while scaling an 8 1/2-year peak of 192.854, as investors bet Japan would keep its accommodative monetary settings even after the BoJ’s decision to move away from negative interest rates.

Yesterday the GBP/JPY pair surged more than 1% after the Bank of Japan put an end to an eight-year period of negative interest rates and discontinued yield curve control for 10-year government bonds.

The BoJ raised its short-term interest rate to 0%-0.1% from -0.1% at its March meeting – the first rate hike since 2007. Yet, the central bank said it expected to keep accommodative conditions in place for the time being, while mounting pressure on the Yen.

Japanese markets are closed for a holiday on Wednesday.

UK CPI inflation at 29-month low

Meanwhile, the latest ONS data showed UK’s annual inflation had eased more than expected to 3.4% in February from 4% recorded in both January and December, while reinforcing the case for a BoE rate cut.

It has been the lowest rate since September 2021, driven by slower price increases for food and non-alcoholic beverages, restaurants and hotels, recreation and culture, as well as miscellaneous goods and services.

UK’s annual core CPI inflation, which excludes volatile categories such as food and energy, decelerated to 4.5% in February from 5.1% in each of the prior three months. It has been the lowest core inflation rate since January 2022.

The data came out a day before the BoE’s second policy meeting for this year.

The Bank of England is largely expected to keep its benchmark interest rate unchanged at a 16-year high of 5.25% for the fifth consecutive meeting in March.

In February, two Monetary Policy Committee members voted in favor of a 25 basis point rate hike, while one member voted in favor of a 25 bps cut.

The BoE said monetary policy would have to remain restrictive for long enough so that inflation is brought back down to its 2% target sustainably in the medium term.

Still, the central bank removed a reference to further policy tightening from its statement and noted the risks to inflation were more balanced.

Currency Pair Performance

As of 8:01 GMT on Wednesday the GBP/JPY currency pair was edging up 0.37% to trade at 192.554.

Earlier in the session, the minor Forex pair went up as high as 192.854. The latter has been the pair’s strongest level since August 21st 2015 (193.765).