During the European session on Thursday, the GBP/JPY pair extended its three-day losing streak, reaching levels near 188.40. The Japanese Yen (JPY) gained strength, fueled by hawkish remarks from officials at the Bank of Japan (BoJ), exerting downward pressure on the GBP/JPY cross.
BoJ Governor Kazuo Ueda, in a statement on Thursday, expressed confidence in seeking an exit from stimulus measures while working towards the 2% inflation target. Ueda highlighted the possibility of rolling back the massive stimulus program once a positive cycle of wages and inflation is confirmed. The extent of potential rate hikes would be contingent upon the prevailing economic conditions if negative rates are lifted.
Adding to the hawkish sentiment, BoJ policy board member Junko Nakagawa shared insights on Japanese inflation and the economic outlook. Nakagawa noted the increasing likelihood of sustainably achieving the 2% inflation target and emphasized the need for careful analysis of data when considering a policy shift. He clarified that there is no preconceived notion on whether to end Yield Curve Control (YCC) in conjunction with the exit from negative rates.
Meanwhile, on Wednesday, UK Chancellor of the Exchequer Jeremy Hunt presented the Spring Budget to Parliament. Positive sentiment surrounding the UK budget, particularly the projections of stronger economic growth by the Office for Budget Responsibility (OBR), supported the Pound Sterling (GBP). According to the OBR, the UK economy is anticipated to grow by 0.8% in 2024 and 1.9% in 2025, surpassing previous forecasts.
Acknowledging the challenges facing the UK economy, including the financial crisis, the pandemic, and the energy crisis stemming from the conflict in Europe, Hunt’s reassurance of the central bank‘s commitment to maintaining high-interest rates to address inflation concerns likely bolstered market sentiment. This support may have contributed to a slowdown in losses for the GBP/JPY cross amid a backdrop of hawkish BoJ comments.
