The GBP/JPY pair remains stable around 194.50 during early European trading on Friday, with the market digesting weaker-than-expected UK Retail Sales data for October. Investors now await the UK S&P Global Purchasing Managers’ Index (PMI) figures for further direction.
UK Retail Sales fell sharply by 0.7% month-over-month in October, surpassing the forecasted 0.3% drop and reversing September’s modest 0.1% gain. On a year-over-year basis, sales increased by 2.4%, falling short of the expected 3.4% growth and the prior reading of 3.2%.
The weak data weighed on the Pound Sterling (GBP), keeping the GBP/JPY pair under pressure as traders seek clarity on the Bank of England’s (BoE) policy direction.
JPY Gains Amid BoJ Rate Hike Expectations
During the Asian session, the Japanese Yen (JPY) found support following a Reuters survey indicating that 56% of economists anticipate the Bank of Japan (BoJ) will raise interest rates in December. The potential rate hike is seen as a response to the JPY’s prolonged depreciation and signs of improving economic conditions.
BoJ Governor Kazuo Ueda has emphasized the importance of addressing the Yen’s impact on economic and price stability, leaving the door open for further monetary tightening. Meanwhile, Prime Minister Shigeru Ishiba’s administration is considering a $90 billion stimulus package to mitigate the effects of rising prices on Japanese households.
Japan’s Economic Indicators Paint a Mixed Picture
Recent data from Japan presents a mixed economic outlook. The National Consumer Price Index (CPI) eased to a nine-month low of 2.3% year-over-year in October, while the annual core CPI also moderated to 2.3%, slightly above market expectations of 2.2%.
On the PMI front, Japan’s Services PMI improved to 50.2 in November from October’s 49.7, signaling a return to expansion. However, the Manufacturing PMI declined unexpectedly to 49.0, the lowest since March, missing the forecast of 49.5 and suggesting ongoing challenges in the industrial sector.
Outlook for GBP/JPY
The GBP/JPY cross remains range-bound as market participants weigh diverging monetary policy expectations for the Bank of England and Bank of Japan. The UK’s upcoming PMI data will likely influence the GBP, while speculation surrounding the BoJ’s December decision and fiscal stimulus measures will continue to shape JPY dynamics.
In the short term, GBP/JPY is expected to trade within the current range, with potential volatility driven by developments in UK economic data and any signals from Japanese policymakers.
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