The GBP/JPY pair fluctuates ahead of looming BoJ rate announcement

BoJ Governor Ueda will be closely watched by observers for any indications of a hawkish stance. Over the course of the year, UK inflation is predicted to print slightly lower than it did in the near term.
Monday saw a test of the GBP/JPY pair back into the 181.00 handle, but it is still stuck in a narrow near-term range as Guppy traders brace themselves for the Bank of Japan (BoJ) report on Tuesday and the UK Consumer Price Index (CPI) inflation final print on Wednesday, which will conclude 2023.

The Bank of Japan is broadly expected to maintain their negative rate policy, keeping the Japanese central bank’s main reference rate pinned just below zero at -0.1%. BoJ Governor Kazuo Ueda rocked JPY markets in early December after taking an unusually hawkish stance, hinting at the eventual end of negative rates.

With markets heading into the year-end slowdown, bets on policy normalization from the BoJ are functionally zero, but investors will be keeping a close eye on any additional hints from BoJ Governor Ueda about a possible timeline on policy tightening.

The UK will follow up the BoJ on Wednesday with one last inflation update for 2023. UK Consumer Price Index (CPI) inflation is expected to show a steady easing in the annualized figures, with YoY CPI forecast through November expected to ease back from 4.6% to 4.4%. Despite a forecast easing in long-term inflation, the near end of the curve is expected to tick upwards, with November’s CPI inflation expected to post a 0.2% increase from October’s reading.

UK Producer Price Index (PPI) figures are also slated to print at 07:00 GMT on Tuesday, and both input and output prices at the production level of the economy are expected to see declines.

UK PPI – Output is expected to decline from 0.1% to -0.1%, while PPI – Inputs are forecast to shed nearly a full percent MoM in November from 0.4% to -0.6%.

UK Retail Price Index figures are also expected on Tuesday, and markets are expecting near-term retail price growth to rebound from -0.2% to 0.3% in November, while the YoY figure is forecast to slip back slightly from 6.1% to 5.8%.

One last UK GDP update for the year will round out the economic calendar for the GBP/JPY on Friday, with UK economic growth forecast to hold at a flat 0.0% for the third quarter as the UK economy tips closer towards a recession.