In the Asian trading session, the GBP/JPY pair gave up the crucial support level of 162.20 and is now slowly falling toward 162.00. After a downside break of the consolidation formed in a 162.80-164.47 area, the asset has changed direction and is now negative.
Despite increasing chances of additional widening in the policy divergence between the Bank of England (BOE) and the Bank of Japan (BOJ), the cross has changed into a negative trajectory.
The UK economy’s price pressures are making things difficult for UK households. The latter is compelled to pay out with penny-worth increments of income that have been adjusted for inflation. Without a doubt, the BOE’s decision not to raise rates is not supported by the state of the labour market, economic expectations, or energy costs. However, the BOE Governor must swallow a sour pill and declare a rate increase of 50 basis points (bps).
The economy appears to be benefiting from the actions taken by the new UK Prime Minister Liz Truss, including the announcement of a trade agreement with the US, a cap on energy and electricity costs, and a reduction in tax slabs. The pound bulls aren’t growing any stronger despite this.
The BOJ’s warning against intervening in the currency market is helping the Japanese yen on the Tokyo front. According to news reports from Bloomberg, Japan’s former Vice FM Tatsuo Yamasaki stated that the Japanese government is prepared to intervene in the currency markets at any time if necessary. He continued by saying that the government didn’t have to wait for US approval before supporting the yen.
Given that the economy still needs to take care of growth prospects and inflation drivers, the BOJ’s monetary policy approach is anticipated to be “neutral.” The BOE-BOJ policy divergence will grow as a result.