GBP/JPY falls to near 189.50 following disappointing UK Retail Sales data

• GBP/JPY weakened as the UK Retail Sales reported an unexpected 0.3% MoM decline in December.
• The Pound Sterling faced challenges as UK GDP fell short of the anticipated growth in November.
• Japan's Kato voiced his expectation that the BoJ will manage monetary policy effectively to achieve the 2% inflation target.

GBP/JPY extends its losses for the third successive day, trading around 189.60 during the early European hours on Friday. The GBP/JPY cross loses ground as the Pound Sterling (GBP) depreciates following disappointing Retail Sales data from the United Kingdom (UK).

UK Retail Sales unexpectedly fell by 0.3% month-on-month in December, following a 0.1% increase in November, with markets anticipating a 0.4% rise. Core Retail Sales, excluding auto fuel, declined by 0.6% MoM, contrasting with the previous growth of 0.1% and the expected 0.1% increase. On an annual basis, UK Retail Sales rose 3.6% in December compared to 0% in November, while core Retail Sales increased by 2.9%, up from the previous decline of 0.5%. Both figures missed market expectations.

However, the British Pound faced selling pressure amid rising expectations of lower interest rates in the United Kingdom (UK), where economic data showed mixed signals. British GDP grew by 0.1% month-over-month (MoM) in November 2024, rebounding from contractions of 0.1% in both October and September. However, this growth fell short of the anticipated 0.2% increase.

The upside of the GBP/JPY cross could be restrained as the Japanese Yen may find support amid growing expectations that the Bank of Japan (BoJ) will hike interest rates next week. These speculations have driven yields on Japanese Government Bonds (JGBs) to multi-year highs.

Japan's Finance Minister Katsunobu Kato reiterated on Friday that monetary policy decisions are the responsibility of the Bank of Japan (BoJ). He also expressed his expectation that the BoJ will conduct monetary policy effectively to meet the 2% inflation target.

Bloomberg reported on Thursday, citing unnamed sources, that the BoJ is likely to raise interest rates next week unless a significant market disruption occurs following the inauguration of US President-elect Donald Trump.