British Pound recovers against the Japanese Yen as Bailey strikes a hawkish tone

GBP/JPY trims part of its earlier intraday losses on Friday as the British Pound (GBP) draws support from hawkish remarks by Bank of England (BoE) Governor Andrew Bailey. At the time of writing, the cross trades around 214.15 after recovering from an intraday low of 213.59.

Speaking in Iceland, BoE Governor Andrew Bailey said that “softness in the economy and uncertainty around the Iran war shock means tolerating temporarily above-target inflation is an appropriate way to approach the policy trade-off.” He added that the central bank has already “tightened policy considerably” after taking expected rate cuts off the table in response to the shock relative to what had been expected by markets.

Bailey also noted that policymakers must “monitor the situation in the Middle East and how it affects the UK economy and inflation very closely” and “adjust policy as required.”

Earlier, the Japanese Yen (JPY) strengthened after Finance Minister Satsuki Katayama warned of decisive action on volatility, reviving intervention fears as USD/JPY neared 160. Reuters said Japan spent 11.7349 trillion Yen, or around 73.6 billion US Dollars, on intervention from April 28 to May 27.

Traders are also monitoring potential US-Iran peace progress after reports of a 60-day MOU. The agreement would extend the ceasefire and reopen the Strait of Hormuz.

The latest developments pushed Oil prices lower, which could ease some pressure on the Yen given Japan’s heavy dependence on imported energy from the Middle East.

The deal is still not finalized, so the Yen remains vulnerable if Oil prices rebound due to renewed tensions or stalled negotiations.

Softer-than-expected inflation data released earlier on Friday clouds the Bank of Japan’s (BoJ) gradual tightening outlook. This raises the risk of a wider interest rate gap with the BoE and keeps the GBP/JPY bias tilted to the upside.

Japan’s Tokyo Consumer Price Index (CPI) rose 1.4% YoY in May, down from 1.5% in April, while CPI excluding Food and Energy eased to 1.6% from 1.9%.