Anna 
During Wednesday’s European morning session, the GBP/JPY cross displayed positive momentum, advancing by 0.21% to trade around 181.63. The upward movement followed the release of minutes from the Bank of Japan’s (BoJ) December meeting, revealing a division among members regarding the potential timing of interest rate adjustments.
In the United Kingdom, concerns about inflation persist as it reached its lowest point in over two years. This development has prompted investors to increase bets on the likelihood of an interest rate cut by the Bank of England (BOE) in the first half of the coming year. Market sentiment currently reflects nearly a 50% chance of a rate cut by March 2024 and fully prices in the possibility of a rate cut by May 2024.
In terms of economic data, the UK’s third-quarter gross domestic product (GDP) fell short of market expectations, recording a -0.1% quarter-on-quarter decline compared to the previous value of 0%. On an annual basis, GDP increased at a rate of 0.3%, down from the previous figure of 0.6%. In contrast, UK retail sales showed a monthly rise of 1.3% in November, compared to 0% in October.
Turning to the yen front, the Bank of Japan released a summary of opinions from its December monetary policy meeting, highlighting a division among members regarding the potential for raising interest rates. While the central bank maintained its ultra-loose policy and dovish guidance, some members expressed caution about raising rates, while others believed it was necessary to start preparing for a future exit.
Bank of Japan Governor Kazuo Ueda indicated that the likelihood of achieving the central bank’s inflation target is gradually rising. However, the central bank will consider exiting the policy only if prospects for sustainably achieving the 2% target improve sufficiently. Market participants expect the BOJ to potentially end the negative interest rate policy in 2024, with speculation about a policy change in January or April.
Looking ahead, Japan’s November retail trade and industrial production data are scheduled for release on Thursday, while UK national housing prices will be unveiled on Friday. Amid thin holiday season trading, the GBP/JPY cross is likely to be influenced by risk sentiment and ongoing adjustments to central bank policies.
