GBP/JPY loses ground ahead of Japanese inflation figures

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• GBP/JPY trades with losses at the 180.20 area, recording a fourth consecutive day of losses.
• Exports in Japan expanded at a slower pace than expected in June.
• Dovish bets on the BoE limit the GBP’s advance.

The GBP/JPY retreats below 181.0 on Thursday as markets stay cautious ahead of Japanese inflation figures and the respective Bank of Japan (BoJ) decision next week. On the other hand, the Pound struggles to find demand following soft inflation figures.

Investors punish the Pound amid softer UK inflation as investors await Japanese figures

Dovish bets continue to weigh on the GBP, but UK yields recovering may limit the Pound’s losses. Following soft inflation figures, the odds of a 50 basis points (bps) hike dropped to nearly 45%, and investors are now seeing a terminal rate of 5.75% vs last week’s 6.50%, which made British yield fall to their lowest levels since mid-June. That being said, the rates bounced back, giving some support to the GBP, but more downside may be on the horizon.

The Ministry of Finance of Japan reported poor Trade Balance data from June. Exports increased by 1.5% YoY, lower than the 2.2% expected, while imports dropped 12.9% YoY, a more significant decline than the expected 11.3%. As Exports are slowing, its likely that policymakers won’t pivot to a contractive monetary policy which could intensify the downturn. 

Despite markets discounting that the BoJ will maintain its policy unchanged next week, investors will eye inflation data from Japan to be reported during the Asian session on Friday. The headline Consumer Price Index (CPI) is expected to have accelerated to 3.5% YoY in June while the Core measure decelerates slightly to 4.2%. Its worth noticing that Governor Ueda from the BoJ, hinted that the bank will pivot once inflation figures meet the bank’s forecast.

GBP/JPY levels to watch

The daily chart indicates that the technical outlook for the cross is neutral to bearish, but indicators have turned flat in negative territory. The Relative Strength Index (RSI) points south near its midline, and the Moving Average Convergence Divergence (MACD) prints red flat bars indicating that the markets seem to be waiting for a catalyst.

Resistance levels: 181.00.182.12 (20-day Simple Moving Average), 183.00.
Support levels: 180.00. 179.50, 179.00.

GBP/JPY Daily chart