GBP/JPY holds gains around seven-year high at 182.00 as spotlight shifts to UK Inflation

The GBP/JPY pair is hovering around a fresh seven-year high around 182.00 in the European session. The cross has remained in the positive trajectory as the Bank of Japan (BoJ) kept its interest rates unchanged at -0.15 and its yields under the 0.5% boundary.

BoJ Governor Kazuo Ueda decided to keep the monetary policy unaltered as more stimulus is required to stem inflationary pressures from domestic factors. Current inflationary pressures in Japan are supported by higher import prices and the BoJ wants to exchange the source by elevating wages and domestic demand.

The need to maintain Japan’s inflation above 2% can be achieved by keeping the monetary policy expansionary.

Meanwhile, sheer strength in the Pound Sterling is coming from expectations that United Kingdom’s inflation will remain stubborn as labor market conditions have tightened further. As per the preliminary report, monthly headline inflation (May) has grown at a pace of 0.4%, slower than the pace of 1.2% registered in April. Annualized headline CPI is seen softening to 8.5% vs. the prior release of 8.7% while core inflation that excludes oil and food prices is seen steady at 6.8%.

UK Finance Minister Jeremy Hunt showed reluctance while discussions about providing fiscal support to households to offset the impact of high mortgage prices, as reported by the Financial Times. Fiscal support to the economy could dampen the impact of tight monetary policy by the Bank of England (BoE) and could fuel inflationary pressures.

The UK inflation release will be followed by the interest rate decision from BoE Governor Andrew Bailey, which is expected to remain severely hawkish.