GBP/JPY trades sideways as BoE Bailey sees scope for lower rates

• GBP/JPY trades sideways, consolidating recent gains after Tuesday’s dip to its weakest level since September 9.
• Japan’s flash PMI showed manufacturing contracting further, while services activity held firm.
• BoE Governor Bailey struck a dovish tone, signaling further rate cuts ahead and citing softer labor market conditions.

The British Pound (GBP) trades sideways against the Japanese Yen (JPY) on Wednesday, with GBP/JPY modestly higher, rebounding after briefly slipping to its lowest level since September 9 on Tuesday. At the time of writing, the cross is hovering around 199.82, holding onto recent gains but struggling to extend the advance.

Bank of England (BoE) Governor Andrew Bailey struck a dovish note on Tuesday, limiting Sterling’s recovery. Speaking in the West Midlands, Bailey said that interest rates still have “some further journey downward,” but the pace of easing will depend on the trajectory of inflation, which the Bank expects to fall further next year. He acknowledged signs of softening in the labor market and noted that monetary policy remains restrictive at present.

On the Japanese side, the latest Jibun Bank flash Purchasing Managers Index (PMI) data offered mixed signals. The Manufacturing PMI slipped deeper into contraction at 48.4 in September, down from 49.7 in August and below the 50.2 forecast, highlighting persistent weakness in factory activity and export demand. However, the Services PMI held firm at 53.0, only slightly lower than 53.1 in August, keeping the composite index in expansion territory at 51.1.

According to Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, “Japan’s private sector business activity expanded at the slowest pace in four months in September, according to the flash PMI. Selling price inflation increased at a more pronounced pace, pointing to higher consumer price inflation in the coming months.” Pan added that the survey highlights a dilemma for the Bank of Japan (BoJ), with weakening growth momentum on one hand and rising price pressures on the other.

Looking ahead, attention will turn to upcoming central bank cues and key data releases. BoE policymaker Megan Greene is scheduled to speak later on Wednesday. In Japan, the BoJ’s Monetary Policy Meeting Minutes are due on Thursday, followed by Tokyo Consumer Price Index (CPI) figures on Friday.