The GBP/JPY pair has staged an impressive recovery, following a steep decline to 172.68 during the European session. The cross experienced significant buying interest, supported by the Bank of Japan’s (BoJ) unwavering commitment to quantitative easing, aimed at achieving inflation rates surpassing 2%.

In Japan, inflation is primarily influenced by higher imported goods, while domestic demand and increased wages have a lesser impact. The BoJ continues its efforts to raise wages and stimulate domestic demand, with the goal of maintaining higher inflation levels.

This week, market attention will be focused on Japan’s Gross Domestic Product (GDP) data. The upcoming release on Thursday is projected to show a quarterly expansion of 0.5%, compared to the previous expansion of 0.4%. The annualized Q1 GDP is expected to remain steady at 1.6%.

In related news, the Bank of England (BoE) has allocated £10 million in six-month Indexed Long-Term repo (ILTR) operations to match banks’ bids. It is worth noting that Long-Term repos enable market participants to borrow central bank reserves for a six-month period by pledging less liquid assets.

Within the United Kingdom, consumer spending on non-essential items has declined due to households grappling with higher interest rates and persistent inflation. The burden of growing interest obligations over time has prompted households to curtail their purchases of durable goods.

According to the British Retail Consortium (BRC), spending in its members’ stores recorded a 3.9% increase in annual terms last month, a significant improvement compared to a 1.1% decline observed a year ago. However, sales fell short of the 5.2% rise seen in April, as reported by Reuters. Despite this, the likelihood of the Bank of England (BoE) implementing another interest rate hike remains firm, as the government aims to fulfill the promise of halving inflation, as declared by UK Prime Minister Rishi Sunak.


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