GBP/JPY corrects from 189.00 as vulnerable UK Retail Sales ease inflation expectations

• GBP/JPY falls sharply from 189.00 as the Pound Sterling hit by weaker Retail Sales data.
• Vulnerable UK consumer spending data has deepened recession fears.
• Market participants shift focus towards the BoJ policy meeting.

The GBP/JPY pair drops from fresh eight-year high of 189.00 in the early New York session. The cross faces pressure as the United Kingdom Retail Sales contracted sharply in December despite festive season.

The Office for National Statistics (ONS) has reported that significant fall in sales at food stores and early Christmas shopping resulted in a sharper decline in the overall consumer spending. Meanwhile, higher consumer spending was also dented by deep cost-of-living crises due to higher interest rates and stubborn price pressures.

Annual Retail Sales suffered a steep contraction of 2.4% while market participants projected a strong growth of 1.1%. A vulnerable consumer spending has renewed fears of a technical recession in the UK economy.

Investors should note that the UK economy contracted by 0.1% in the third quarter of 2023 as per the revised estimates from the UK ONS. Latest projections from the Bank of England (BoE) indicated that the economy is not expected to show any growth in the final quarter of 2023. If the Q4 Gross Domestic Product (GDP) contracts, it would be right to state the UK economy in a technical recession.

Going forward, it would be challenging for Bank of England (BoE) policymakers to retain restrictive monetary policy stance for ensuring a price stability or deliver a dovish decision due to dismal economic outlook.

On the Japanese Yen front, market participants await Bank of Japan’s (BoJ) first monetary policy meeting, which is scheduled for Tuesday. The BoJ is unlikely to emphasize on exiting the decade-long ultra-loose monetary policy due to unfavorable Middle East tensions, easing consumer price inflation and slower wage growth.