GBP/JPY Falls Below 158.00 as UK Recession Concerns Grow

Following Wednesday's release of UK inflation data, the GBP/JPY pair is likely to experience a sharp decline. After the UK's Office for National Statistics reported the annual UK Consumer Price Index (CPI) at a staggering 9 percent, the pound bulls shown widespread weakness. The asset has declined almost 2.5 percent since Tuesday, when it reached a recent high of 161.85.

Despite the fact that the UK Statistics Office has announced a slight decline in the annual rate from the consensus of 9.1 percent, a figure of 9 percent is sufficient to cause mayhem in the FX realm. It appears that the Bank of England (BOE) has been left with little choice but to implement a massive rate hike, since rising price pressures would aggravate the real income position for people.

The monthly rate of inflation in the United Kingdom increased to 2.5% from 1.1% previously. While the core CPI, which excludes food and energy prices, has increased to 6.2%, it has remained in line with expectations.

On the Japanese yen front, weaker than expected Gross Domestic Product (GDP) numbers have encouraged yen bulls. The annualized GDP number for Japan remained higher than the average estimate of -1.8 percent, at -1 percent. While the quarterly figure of -0.2 percent was still negative, it exceeded the predictions of -0.4 percent. Investors will depend on Japan's Friday-due inflation data for further guidance.

The early estimate for the annual CPI in Japan is 1.5 percent, but the core CPI could fall to -0.9 percent from -0.7 percent previously.

GBP/JPY