GBP/JPY falls below 198.50 as UK Retail Sales rise below market expectations

• GBP/JPY faces challenges following the release of disappointing UK Retail Sales data.
• UK retail sales rose by 0.9% MoM in June, falling short of market expectations for a 1.2% increase.
• The headline Tokyo Consumer Price Index rose 2.9% year-over-year in July, against the 3.1% prior.

GBP/JPY continues to lose ground for the second successive day, trading around 198.30 during the Asian hours on Friday. The currency cross depreciates as the Pound Sterling (GBP) struggles following the key economic data from the United Kingdom (UK).

The UK Retail Sales rose 0.9% month-over-month in June, against the market expectations of a 1.2% increase. The previous reading was -2.8% (revised from -2.7%). The core Retail Sales, stripping the auto motor fuel sales, climbed 0.6% MoM, compared with the previous revised drop of 2.9% and the expected 1.2% growth. The annual Retail Sales jumped 1.7% in June, while the core Retail Sales also grew 1.8%, both readings falling short of the market expectations.

Additionally, the UK GfK Consumer Confidence declined to -19 in July from -18 in June, falling from a six-month high as households adopt caution amid rising concerns over taxes and inflation in the United Kingdom. Finance Minister Rachel Reeves is expected to increase taxes for a second year in a row in her upcoming budget, following Prime Minister Keir Starmer's decision to scrap earlier plans to slash billions from welfare spending.

The downside of the GBP/JPY cross could be restrained as the Japanese Yen (JPY) struggles following the release of Tokyo Consumer Price Index (CPI) data. The Statistics Bureau of Japan showed the headline Tokyo Consumer Price Index for July climbed 2.9% year-over-year, as compared to 3.1% in the previous month. CPI ex Fresh Food climbed 2.9% YoY in July against 3.0% expected and down from 3.1% in the prior month. The CPI ex Fresh Food, Energy rose 2.9% YoY in July, compared to the previous reading of 3.1%.

However, Tokyo's core inflation for July came in slightly below expectations but stayed well above the Bank of Japan's (BoJ) 2% target, strengthening expectations for another rate hike later this year. The BoJ is set to announce its policy decision next week and is widely expected to keep rates steady. The Japanese central bank is expected to revise up its inflation forecast in its quarterly outlook. Deputy Governor Shinichi Uchida signaled a cautious approach to further tightening, citing increased uncertainty surrounding global trade policy and its potential impact on economic growth.