GBP/JPY steadies as firm Tokyo inflation revives BoJ rate-hike speculation

• GBP/JPY sees limited movement as traders react to firmer Tokyo CPI and shifting BoJ expectations.
• Tokyo CPI stays above 2%, reinforcing speculation that the BoJ could consider a rate hike in December.
• Yen stays pressured by fiscal concerns after Japan approved a large stimulus package.

The British Pound (GBP) treads water against the Japanese Yen (JPY) on Friday as the latest Tokyo inflation data keeps the Bank of Japan (BoJ) firmly on a tightening path.

At the time of writing, GBP/JPY is trading around 206.70, though the cross remains on track to log its third straight weekly gain as the Yen stays under sustained pressure amid fiscal concerns following the approval of a large stimulus package.

The Statistics Bureau of Japan reported that Tokyo’s headline Consumer Price Index (CPI) rose 2.7% YoY in November, matching market expectations and easing from 2.8% in October. The measure that excludes both food and energy increased 2.8% YoY in November, unchanged from the 2.8% pace recorded in October.

Tokyo CPI excluding fresh food rose 2.8% YoY in November, coming in above the 2.7% forecast and matching the 2.8% reading in October.

The data underscored sticky price pressures holding well above the BoJ’s 2% target. After weeks of fading conviction in a near-term hike, traders are now reassessing the possibility that the central bank could raise rates at the December 18-19 policy meeting.

The ongoing weakness of the Yen is also in focus, with markets increasingly viewing currency depreciation as a factor that may push policymakers toward tightening as they monitor exchange-rate-driven inflation risks.

Japan’s economic calendar also featured labour-market and consumption indicators. The Unemployment Rate stood at 2.6% in October, slightly above the 2.5% forecast and unchanged from September. Retail Trade rose 1.7% YoY in October, beating the 0.8% forecast and picking up from the 0.2% increase seen in September.

On the UK side, the session remains light on major data releases, but recent weeks have seen expectations build that the Bank of England (BoE) could move toward a rate cut in December. The shift has been driven by softer inflation momentum, with BoE policymaker Megan Greene saying on Thursday that the latest inflation news has been “to the downside.”

Greene also noted that most policy rules suggest keeping rates steady, while acknowledging that slack has opened up in both the labour market and the broader economy.