GBP/JPY drops to near 188.40 on hawkish comments from the BoJ officials

• GBP/JPY extends its downward trajectory, declining by approximately 0.90% on Thursday.
• BoJ Governor Ueda emphasized the possibility of pursuing an exit from stimulus measures while achieving the 2% inflation target.
• UK Chancellor of the Exchequer Jeremy Hunt mentioned the BoE’s commitment to keeping rates high to curb inflation.

GBP/JPY plunges to near 188.40 during the European session on Thursday, extending its losing streak for the third day. The hawkish comments from the Bank of Japan’s (BoJ) officials reinforced the Japanese Yen (JPY), which in turn, undermines the GBP/JPY cross.

Bank of Japan (BoJ) Governor Kazuo Ueda stated on Thursday that it is “fully possible to seek an exit from stimulus while striving to achieve the 2% inflation target.” He emphasized considering rolling back the massive stimulus program once a positive cycle of wages and inflation is confirmed. The extent of rate hikes would be determined by the situation at the time if negative rates are lifted.

Additionally, Bank of Japan (BoJ) policy board member Junko Nakagawa shared his perspective on the Japanese inflation and economic outlook. He mentioned that the prospects of sustainably achieving the 2% inflation target are gradually increasing. Nakagawa emphasized the need to scrutinize whether and for how long data should be analyzed in deciding a policy shift. He also clarified that there is no preset idea on whether to end Yield Curve Control (YCC) in tandem with the exit from negative rates.

On Wednesday, UK Chancellor of the Exchequer Jeremy Hunt presented the Spring Budget to Parliament. The Pound Sterling (GBP) likely gained from positive sentiment surrounding the United Kingdom’s (UK) budget, especially as the Office for Budget Responsibility (OBR) projects stronger economic growth. According to the OBR, the UK economy is expected to grow by 0.8% in 2024 and 1.9% in 2025, surpassing the growth rates forecasted in November of 0.7% and 1.4%, respectively.

Hunt’s acknowledgment of the challenges confronting the UK economy, such as the financial crisis, the pandemic, and the energy crisis stemming from the conflict in Europe, likely influenced market sentiment. His mention of the central bank’s commitment to keeping interest rates high to address inflation concerns may have provided support for the British Pound (GBP). As a result, the GBP/JPY cross might have experienced a slowdown in its losses.