GBP/JPY retreats as markets await Japan’s Trade Balance, UK rate decision

The GBP/JPY pair was seen falling back to the midline after failing to maintain its bullish advance. Regarding the imminent rate decision from the Bank of England, investors are waiting for guidance.

The Japanese Yen’s momentum for the Wednesday session may be set off by data on the trade balance in Japan. The GBP/JPY was targeting the 183.00 handle again after failing to retake the 183.50 barrier on Tuesday, but the pair is currently trading at 183.22.

In light of this week’s central bank events, the Sterling is trading slowly and without much momentum. Within a few hours, trade balance data for Japan will be released late on Tuesday. It is anticipated that both exports and imports would decrease, by 1.7% and -19.4%, respectively, and that this will result in a -659.1B decrease in the overall merchandise trade balance.

Inflation data is expected on Wednesday for the United Kingdom, with the Consumer Price Index (CPI) headline for the month of August forecast to tick upwards to 0.7% from the previous month’s 0.4% decline.

As the UK central bank is anticipated to raise rates to 5.5%, a 25-basis-point hike from 5.25%, on Thursday, the inflation numbers will give solid justification for the Bank of England to decide on quantitative tightening. Investors will be closely monitoring both inflation data and the BoE’s Monetary Policy Summary as the UK economy continues to sputter and suffer from high inflation.

The Bank of Japan will make its own interest rate decision on Friday, and it is widely anticipated that they will keep their current -0.1% negative rate. Recent remarks from BoJ officials hint at a potential conclusion to the negative rate cycle, which may have caused investors to position themselves prematurely in favour of the bulls.

Japanese government officials quickly shot down the claims, pointing out that the BoJ could only raise rates if it could keep them over its 2% target level; a goal that may prove illusive for the BoJ given that inflation is predicted to fall in Japan.

Friday will also close out the week with Retail Sales figures for the UK. Retail sales figures are forecast to gain 0.5% in August after the previous month’s -1.2% decline.