• GBP/JPY has turned sideways as investors are awaiting the interest rate decision by the BOE.
• To combat the price rise, a rate hike of 50 bps by the BOE looks likely.
• Lower earnings and higher consumption payouts have hurt the sentiment of UK households.

The GBP/JPY pair is displaying back and forth moves in a 162.47-162.66 range as investors have shifted to the sidelines ahead of the monetary policy by the Bank of England (BOE). The asset is likely to extend its two-day winning streak if the cross oversteps Wednesday’s high at 163.06.

Considering the market expectations, the BOE will announce a rate hike by 50 basis points (bps). Featuring a rate hike by half of a percent by BOE Governor Andrew Bailey will push the interest rates to 1.75%. It is worth noting that price pressures in the UK area have climbed to 9.4%. Also, the inflation rate has not shown any sign of exhaustion yet, which indicates that the new normal 50 bps rate hike is not sufficient to offset the accelerating inflationary pressures.

The households in the UK area are facing the headwinds of soaring price rise rates. There is no denying the fact that the inflation rate is sky-rocketing, which is hurting the paychecks of the households. Apart from that, the employees are witnessing a drop in Labor Cost Index. A simultaneous drop in earnings along with the lower-valued paychecks has trimmed their confidence in the UK economy.

On the Tokyo front, investors are worried over the fact that the rate hike by the BOE will escalate the BOE-Bank of Japan (BOJ) policy divergence. This could drag the yen bull further. The continuation of ultra-loose monetary policy by BOJ Governor Haruhiko Kuroda to keep growth rates stronger is bringing more export business to the table.