Anna 
The GBP/JPY pair has extended its winning streak for the fourth consecutive trading session, reaching a historic high of 196.00 on Friday. This surge is attributed to market reaction following the Bank of Japan’s (BoJ) interest rate decision, which aligned with expectations.
The BoJ maintained interest rates within the range of 0% to 0.01% and signaled its commitment to policy normalization. The central bank emphasized readiness to adjust monetary easing based on underlying inflation trends, shifting away from its current purchase of approximately 6 trillion JPY worth of Japanese Government Bonds per month.
However, the economic and inflation outlook presented by the BoJ indicated concerns over weak growth paired with projected rising inflation in the coming years, casting doubts among investors about achieving higher inflation amidst subdued growth. This has heightened uncertainty regarding the scope and timing of policy tightening.
Additionally, softer-than-expected annual Consumer Price Index (CPI) data from Tokyo for April has intensified skepticism surrounding Japan’s inflation trajectory, which remains above the 2% target. The annual CPI rose at a slower pace of 1.8%, below expectations and the previous reading of 2.6%. Tokyo CPI excluding Fresh Food also softened to 1.6% from the consensus forecast of 2.2% and the prior reading of 2.4%.
Conversely, the Pound Sterling has demonstrated robust performance fueled by strong Services Purchasing Managers’ Index (PMI) figures, deepening concerns about persistent inflation. Elevated Services PMI levels support employment and wage growth, potentially impeding progress toward easing price pressures to the desired 2% rate. This scenario underscores fears of prolonged higher interest rates in the UK.
In summary, the GBP/JPY pair’s surge to a historic high is underpinned by divergent monetary policy stances and economic outlooks between the Bank of Japan and the UK, reflecting broader market sentiment and expectations for policy adjustments and inflation trajectories.
