GBP/JPY fails to sustain above 157.00 as UK wage growth triggers higher inflation projections

GBP/JPY is struggling to shift its business above the immediate resistance of 157.00 in the early European session. The cross is facing barricades in escalating its recovery further amid rising chances that the Bank of England (BOE) will face stiff hurdles in achieving price stability. The Pound Sterling is expected to remain on tenterhooks as investors are waiting for the release of the United Kingdom Employment data, which is scheduled for Tuesday.

Meanwhile, the Japanese Yen is gaining strength despite rising uncertainty over the release of the first monetary policy by the Bank of Japan (BoJ) of CY2023. What has escalated curiosity among the market participants is that the Bank of Japan might call for an exit from its decade-long ultra-loose monetary policy. Considering the subdued performance of the GBP/USD pair, the GBP/JPY might display some volatility ahead.

Soaring wage inflation a major trouble for Bank of England policymakers

The United Kingdom's economy has been through turbulent times in CY2022 due to political instability and faulty risk-management systems in the banking sector. The economy seems a laggard in controlling the stubborn inflation in comparison to other Western leaders.

Monday’s speech from Bank of England (BoE) Governor Andrew Bailey in which he assures inflation softening failed to provide strength to the Pound Sterling. Bank of England’s Bailey has provided remarks of decelerating inflation on the basis of falling energy prices. However, the Bank of England Governor is still worried about rising wage growth, which could be a hurdle in decelerating inflation. He added that the 'Major risk to BoE's central case for inflation coming down is the UK labor shortage.'

Brexit seems to be the major catalyst responsible for the shortage of labor in the United Kingdom's economy. The post-Brexit UK economy is facing a shortfall of more than 300,000 workers as the result of ending the free movement of labor with the EU, according to a new estimate by leading researchers, reported by Financial Times.

Spotlight shifts to United Kingdom Employment data

For further action in the cross, investors are keenly awaiting the release of the United Kingdom Employment data. As per the projections, the Unemployment Rate for three months (Nov) is expected to remain steady at 3.7%. While the Average Earnings excluding bonus is expected to rise to 6.3% from the prior release of 6.1%.

The rationale behind higher consensus for the Average Earnings data could be the shortage of labor in the UK economy.  This might escalate the upside risk for inflation ahead as more liquidity in the palms of the households will result in bumper retail demand, which will not provide any reason to producers to trim prices of goods and services at factory gates. The higher Producer Price Index (PPI) will continue to strengthen the inflationary pressures.

BOJ to provide cues about exit from easy monetary policy

For the past decade, the Bank of Japan is heavily pouring liquidity into the economy to fight deflation and spurt the growth rate. This has led to a serious cut in the value of the Japanese Yen, which is the reason why the Bank of Japan and other Japanese officials have started considering an exit from the loose monetary policy. In its first monetary policy on Wednesday, the BoJ might provide cues about changing policy stance ahead.

Apart from that, investors are curious about the novel leadership of the Bank of Japan. Headlines from Reuters that the new Bank of Japan governor nominee is likely to be presented to parliament Feb 10 have provided some development. Career c.bankers Amamiya, Nakaso, Yamaguchi are seen as top candidates for being the successor of current Bank of Japan Governor Haruhiko Kuroda.

GBP/JPY technical outlook

GBP/JPY is forming an Inverted Flag chart pattern on an hourly scale that indicates a sheer consolidation, which is followed by a breakdown in the same. Usually, the consolidation phase of the chart pattern serves as an inventory adjustment in which those participants initiate shorts, which prefer to enter an auction after the establishment of a bearish bias.

The 50-period Exponential Moving Average (EMA) at 157.00 is acting as a major barricade for the Pound Sterling. Meanwhile, the Relative Strength Index (RSI) (14) is facing barricades around 60.00. A failure in stepping into the bullish range of 60.00-80.00 might trigger significant offers from the market participants.