- GBP/JPY trades sideways around 161.50 as the focus turns to concerns of a UK winter energy shock.
- British households already face the headwinds of high price pressures and low wages.
- The Bank of Japan’s prudent monetary policy failed to accelerate economic activity.
GBP/JPY during Tokyo session at 161.32-161.60 fluctuated within a narrow range. The cross has traded sideways after Wednesday’s strong rebound from 160.86. A successful retest of Tuesday’s lows near 161.00 pushed the cross higher, however, the lack of a potential trigger to strengthen the asset kept it sideways.
In a broader context, the crossover may give up on the pullback as the UK economy nears recession amid a potential energy shock. Following Russia’s invasion of Ukraine, the UK economy is facing upward pressure on prices driven by rising gas and electricity prices due to an embargo on Russian energy imports. As winter approaches and more energy is needed, the energy regulator has announced that its price cap is expected to rise by 80%.
A sharp increase in the energy price cap could further dampen the already subdued sentiment among British households. Price pressures are already nearing 40-year highs, and the government has failed completely to improve the labor cost index. Now, more energy bill pressure on households will reduce consumer confidence in the economy. This could have a big impact on the pound.
In Tokyo, the Bank of Japan (BOJ) continued to implement prudent monetary policy) failed to stimulate economic activity in the yen area. Japan’s Jibun Bank Manufacturing PMI has fallen to 51, below expectations and the previously published 51.8 and 52.1, respectively. In addition, the services PMI remains fragile at 50.7 and the previous consensus of 50.3 at 49.2.
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