GBP/JPY drops sharply below 182.00 on stable BoE-BoJ policy divergence outlook

The GBP/JPY pair faced a sharp sell-off near 183.70 on Tuesday after the United Kingdom Office for National Statistics (ONS) reported that the laborforce witnessed lay-off for the third time in a row. The correction in the cross has extended to 181.60 as the UK demand environment has deteriorated further due to the restrictive policy stance by the Bank of England (BoE).

The Pound Sterling has been facing the wrath of higher borrowing costs due to elevated interest rates by the Bank of England (BoE) in an attempt to bring down inflation to 2%. Consistently squeezing the UK labor market is the outcome of a downtick in business activity due to poor demand. The UK business activity remained below the 50.0 threshold in an October survey by S&P Global as employers remained worried about the UK economic outlook and constraints on spending due to higher borrowing costs.

Easing labor market conditions, poor economic outlook, and weak consumer spending warrant one more neutral interest rate decision consecutively from the BoE on November 2. The BoE is expected to keep interest rates unchanged at 5.25% amid an absence of supportive economic readings. Meanwhile, BoE Governor Andrew Bailey is confident over a marked decline in inflation in October.

The Japanese Yen has been underpinned against the Pound Sterling as expectations of intervention by the Japanese Ministry of Finance (MOF) in the FX domain to provide cushion to the domestic currency remain high.

Economists hope that a stealth intervention is a near-term solution and will not turn the tide, which is towards the Japanese Yen till the monetary policy by the Bank of Japan (BoJ) remains expansionary. This week, investors will focus on the Tokyo consumer inflation data, which will be published on Friday.