GBP/JPY sellers attack 165.00 as yields, Japan data battle UK’s efforts to tame inflation

• GBP/JPY prints four-day downtrend amid fears of recession, inflation.
• Japan’s inflation, unemployment rate increased, Tankan Large Manufacturing Index slumps.
• British government plans to cut VAT to battle the rising prices.
• UK Manufacturing PMI, risk catalysts will be crucial for immediate directions.

GBP/JPY remains pressured around 165.00 during the four-day downtrend amid early Friday morning in Asia.

The cross-currency pair’s latest moves could be linked to the downbeat US Treasury yields, as well as the UK’s failure to impress pound buyers despite announcing the plans to cut the Value Added Tax (VAT). Also exerting downside pressure on the GBP/JPY prices is news from Tokyo suggesting the record tax collection and mixed data.

Japan’s Tokyo Consumer Price Index (CPI) rose to 2.3% versus 2.2% expected and 2.4% prior in June while the nation’s Unemployment Rate for May increased to 2.6% compared to 2.5% market forecast and previous readings. Further, the Tankan Large Manufacturing Index for the second quarter (Q2) of 2022 slumped to 9 versus 13 expected and 14 prior.

Elsewhere, Nikkei came out with the news suggesting that Japan's tax revenue in the Financial Year 2021 reached a record 67 trillion yen.

On the other hand, Prime Minister Boris Johnson's chief of staff Steve Barclay suggested reducing the 20% headline rate of the tax, The Times said, adding a temporary cut would reduce the tax bill for millions, per Reuters. The news fails to impress the GBP/USD buyers as the actual outcome is yet to witness and the official announcement is pending as well.

Additionally, the final readings of the UK Gross Domestic Product (GDP) for Q1 2021 matched initial forecasts of 0.8% QoQ and 8.7% YoY.

It should be noted that the escalating fears of recession direct traders towards the US government bonds, which in turn exert downside pressure on the Treasury yields. That said, the US 10-year bond coupons dropped below 3.0%, before bouncing off to 3.01% at the closing, to portray around 50 basis points (bps) of a fall from June’s peak.

Looking forward, the final reading of the UK S&P Global/CIPS Manufacturing PMI for June, expected to confirm 53.4 initial forecasts, will be important to watch for fresh impulse. However, risk catalysts will be the key.

Technical analysis

The first daily closing below the 21-DMA in five weeks keeps GBP/JPY bears hopeful of revisiting the 50-DMA support, around 162.80 by the press time.

Alternatively, a one-week-old resistance line, near 166.20, adds to the upside filters even if the buyers manage to cross the immediate 21-DMA hurdle of 165.45.