GBP/JPY remains tepid near 190.50 following key economic figures from United Kingdom

GBP/JPY continues to lose ground for the second successive day, trading around 190.60 during the early European hours. The GBP/JPY cross loses ground as the Pound Sterling (GBP) faces challenges following the disappointing economic data from the United Kingdom (UK) on Thursday.

The UK economy returned to growth in November, with Gross Domestic Product (GDP) rising by 0.1%, following a 0.1% contraction in October. However, this fell short of market expectations for a 0.2% expansion.

Meanwhile, the Index of Services for October remained unchanged at 0% 3M/3M, compared to October's 0.1%. In November, Monthly Industrial and Manufacturing Production declined by 0.4% and 0.3%, respectively, with both readings coming in below market expectations.

Additionally, the GBP received downward pressure as the yield on the UK 10-year Gilt fell to 4.73%, retreating from multi-decade highs, after official data showed an unexpected drop in headline UK inflation, increasing expectations of rate cuts by the Bank of England (BoE).

The UK Consumer Price Index (CPI) increased by 2.5% year-over-year in December, down from 2.6% in November and below the market forecast of 2.7%. Despite the slowdown, the figure remained above the Bank of England’s (BoE) 2% target.

Moreover, the Japanese Yen (JPY) appreciates amid growing expectations that the Bank of Japan (BoJ) will hike interest rates next week. These speculations have driven yields on Japanese Government Bonds (JGBs) to multi-year highs.

Bloomberg reported on Thursday, citing unnamed sources, that the BoJ is likely to raise interest rates next week unless a significant market disruption occurs following the inauguration of US President-elect Donald Trump.

BoJ Governor Kazuo Ueda reiterated that the central bank will discuss the possibility of a rate hike next week and may increase the policy rate this year if economic and inflation conditions continue to improve. Key factors influencing the BoJ’s decision include the policy direction of the new US administration and domestic wage negotiations.