GBP Struggles Against JPY as BoJ Maintains Hawkish Stance

The British Pound (GBP) had a tough time extending its recovery against the Japanese Yen (JPY) after a strong opening on Friday. The pair rebounded significantly at the open, but struggled to maintain momentum as the JPY regained ground following the release of stronger-than-expected Tokyo Consumer Price Index (CPI) data for July.

The CPI ex. Fresh Food arrived at 1.9% Year-on-year (YoY), beating estimates and the previous reading of 1.6%. The Bank of Japan (BoJ) maintained a hawkish rhetoric on interest rates, leaving them unchanged at 1%, but analysts doubt that this will be enough to prevent the JPY from trading weaker again in the coming days.

Commerzbank notes that 'the stage was set' ahead of Japan's latest policy decisions, and that 'support from the US Treasury Department also indicated that the move would likely be met with a favorable response internationally'. The bank highlights that 'this morning's inflation data for the Greater Tokyo Area further show that inflation is now slowly stabilizing at 2%, and the momentum of recent months points more toward an upside risk', but that this may not be enough to prevent the JPY from weakening.

The Bank of England (BoE) also had a significant impact on the market, with traders trimming BoE interest rate expectations after Governor Andrew Bailey's press conference. Bailey signaled that inflationary pressures didn't appear much concerning, and analysts at Deutsche Bank downplayed hike risks, noting that markets 'dialed back expectations for BoE hikes in response', with the implied probability of a September move dropping sharply.