British Pound weakens against Japanese Yen amid hawkish BoJ prospects

The British Pound (GBP) is under pressure against the Japanese Yen (JPY) on Wednesday, trading 0.22% lower at around 216.85 during the European trading session. The cross weakens as the Japanese currency strengthens, with financial markets pricing in an interest rate hike by the Bank of Japan (BoJ) in its policy meeting next month.

Japan data underpins BoJ tightening bets as JPY firms against soft USD

Strategists at Scotiabank highlight that Japan’s July inflation figures maintained the recent upward trend, noting that “Japan’s July CPI rose to 1.9% in the year, in line with expectations, extending the steady pick-up in prices seen since February.” They add that the latest “inflation data added marginally to conviction that the BoJ will tighten next month, with 20bps or hikes reflected in swaps."

The August 17-24 Reuters poll released earlier in the day also showed that 57% of economists expected the BoJ to raise its interest rates by 25 basis points (bps) to 1.25% in September. This is a sharp turnaround from a July poll when just 5% expected an interest rate hike move.

This week, investors will pay attention to the Tokyo Consumer Price Index (CPI) data for August, which will be released on Friday. The inflation data is expected to influence BoJ interest rate expectations. Tokyo CPI ex. Fresh Food is seen growing at a moderate pace of 1.7% Year-on-Year (YoY) against the July reading of 1.9%.

Meanwhile, the British Pound reflects a mixed performance against its peers in the European session. Going forward, the major trigger for the British currency will be market expectations for the Bank of England’s (BoE) monetary policy outlook.