- GBP/JPY has continued its two-day winning streak due to solid hopes of further BoE-BoJ policy divergence.
- To maintain Japan’s inflation steadily above 2%, a tweak in the BoJ monetary policy is less likely.
- BoE Bailey assured that inflation will come down, but it will take longer than expected.
The GBP/JPY pair has stretched its rally to near 178.80 in the European session. The cross has extended its two-day winning streak as investors are hoping that the Bank of Japan (BoJ) will not alter its interest rate policy on Friday considering the fact that the Japanese economy needs monetary stimulus to elevate wages and the overall demand.
The asset is expected to continue its upside momentum as an unchanged interest rate decision by BoJ Governor Kazuo Ueda and a continuation of the rate-hiking regime by the Bank of England (BoE) would further widen the BoE-BoJ policy divergence.
BoJ Ueda is constantly reiterating the need for consistent monetary stimulus as historic high inflationary pressures in Japan are inspired by higher import prices. In order to maintain inflation steadily above 2% a tweak in the monetary policy is less likely.
Meanwhile, the odds of one more interest rate hike by the BoE have turned resilient further as United Kingdom’s labor market conditions have strengthened more and monthly Gross Domestic Product (GDP) is expanding and food prices are still near a 45-year high. Therefore, BoE Governor Andrew Bailey has no other option than to raise interest rates further.
Current UK inflation is at 8.7% on an annualized basis and can be tackled by the continuation of the interest rate hike spell. On Tuesday, BoE Governor Andrew Bailey assured that inflation will come down, but it will take longer than expected while speaking before the House of Lords Economic Affairs Committee.
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