GBP/JPY plunges below 158.00 as UK recession fears strengthen

• GBP/JPY has slipped below 158.00 as inflationary pressures soar.
• The BOE looks bound to elevate interest rates vigorously on annual inflation print at 9%.
• Japan’s annual National CPI at 1.5% is well below the targeted figure of 2%.

The GBP/JPY pair is facing an intense sell-off after the release of the UK inflation on Wednesday. A broad-based weakness has been observed in the pound bulls after the UK’s Office for National Statistics reported the annual UK Consumer Price Index (CPI) at a whopping level of 9%. The asset has eased around 2.5% from its recent high of 161.85 recorded on Tuesday.

Although the UK Statistics Office has reported a minor fall in the annual figure from the consensus of 9.1%, a figure of 9% is sufficient to create havoc in the FX domain. It looks like the Bank of England (BOE) has left with no other alternative than to feature a bumper rate hike as mounting price pressures are going to worsen the situation of the real income for the households further.

The monthly figure of the UK inflation has jumped to 2.5% from the prior print of 1.1%. While the core CPI that doesn’t include food and energy prices has jumped to 6.2% but remained in line with the estimates.

On the Japanese yen front, lesser weak Gross Domestic Product (GDP) figures than the consensus have supported the yen bulls. The annualized figure for Japan’s GDP remains higher at -1% against the consensus of -1.8%. While the quarterly figure landed at -0.2% remained negative but still outperformed the forecasts of -0.4%. For further direction, investors will focus on Japan’s inflation, which is due on Friday.

A preliminary estimate for the annual Japan CPI is 1.5% while the core CPI could drop further to -0.9% from the prior print of -0.7%.