GBP/JPY plunges on softer-than-anticipated UK Inflation report

• GBP/JPY shifts on backfoot after soft UK Inflation report.
• The BoE may continue with its restrictive policy stance as UK has highest inflation among western economies.
• This week, UK Retail Sales and Japan’s National CPI data will be keenly watched.

The GBP/JPY pair faced a sharp sell-off after the release of the softer-than-projected United Kingdom Consumer Price Index (CPI) report for November. The UK Office for National Statistics (ONS) reported that monthly headline inflation witnessed a de-growth by 0.2% while investors projected a growth of 0.1%. In October, the economic data remained stagnant. The annual headline and core inflation decelerated significantly to 3.9% and 5.1% respectively.

A sharp decline in the UK inflation has resulted in a sigh of relief for Bank of England (BoE) policymakers but chances for the central bank keeping interest rates in a restrictive territory for a longer period than other central bankers are high. In spite of a significant fall in price pressures in November, inflation in the UK region is highest in comparison with other western economies.

On Tuesday, BoE Deputy Governor Sarah Breeden emphasized on keeping policy in a restrictive manner to keep price pressures in check but said "I have no pre-determined policy path in mind," when asked about guidance on interest rates.

After the inflation hangover, investors will focus on the UK Retail Sales data for November, which will be published on Friday. Monthly Retail Sales data is seen expanding by 0.4% against a contraction of 0.3%.

On the Tokyo front, the Japanese Yen is broadly under pressure as roadmap about exiting from ultra-dovish monetary policy was missing in commentary of Bank of Japan (BoJ) Governor Kazuo Ueda in his monetary policy statement. The BoJ kept interest rates unchanged in the negative trajectory as anticipated.

Going forward, investors will focus on the National CPI data for November, which will be published on Friday.