GBP/JPY aims to overstep 164.00 as risk-off tone trims, BOE-BOJ policy eyed

The GBP/JPY pair is on the verge of overstepping the round-level resistance of 164.00 in the early Asian session. The asset has extended its gains after delivering an upside break of the consolidation formed in a narrow range of 162.78-163.60. The risk-sensitive currency has picked significant bids as risk-on impulse rebounds and is expected to advance further.

The cross is likely to deliver a fresh rally as the Bank of England (BOE)-Bank of Japan (BOJ) policy divergence is expected to widen further. The BOE is set to announce one more 50 basis points (bps) rate hike on Thursday as a step further to fixing the inflation chaos. The recent decline in the headline Consumer Price Index (CPI) to 9.9% vs. the expectation of 10.2% and the prior release of 10.1% is not going to trim the extent of the rate hike.

The UK inflation rate is near the double-digit figure, the highest among the G-7 nations, and is also facing an energy crisis. A significant decline in the price pressures is highly required otherwise it will continue to harm the confidence of the households, which are already forced to make higher payouts.

On the Tokyo front, the BOJ officials are worried over the prolonged depreciation of the Japanese yen and are expected to shift their stance this time. A prolonged ultra-dovish stance will conclude and the BOJ will approach the ‘neutral’ stance. But that does not warrant a drop in the BOE-BOJ policy divergence.

Meanwhile, the Statistics Bureau of Japan has reported the National CPI at 3%, higher than the forecasts and the prior release of 2.6%. Also, the core CPI that excludes food and oil prices has improved to 1.6% that the former figure of 1.2% but remained lower than the expectations of 1.7%.