• GBP/JPY weakens as softer UK GDP and production data weigh on the Pound.
• Rising Oil prices amid the US-Iran war raise global inflation risks.
• Japan’s Finance Minister says the government will take all possible measures in the FX market as Yen weakness persists.

The British Pound (GBP) weakens against the Japanese Yen (JPY) on Friday as Sterling comes under broad pressure following a batch of weaker-than-expected UK economic data. At the time of writing, GBP/JPY is trading around 211.50, retracing all the gains recorded earlier this week.

Data released by the UK’s Office for National Statistics (ONS) showed that the economy lost momentum at the start of the year. UK Gross Domestic Product (GDP) was flat on a monthly basis in January, missing market expectations for a 0.1% increase and slowing from the 0.2% growth recorded in December.

The production sector also showed mixed momentum at the start of the year. Industrial Production declined 0.1% MoM in January, missing expectations for a 0.2% increase after a -0.9% contraction in December. Meanwhile, Manufacturing Production rose 0.1% MoM, but still fell short of the 0.2% forecast after falling -0.5% in the previous month.

The batch of softer UK data reinforced concerns about slowing economic momentum in the UK. At the same time, the ongoing US–Iran war is adding to global inflation risks as Oil prices surge amid severe supply disruptions through the Strait of Hormuz.

This combination of weaker growth and rising energy prices complicates the Bank of England’s (BoE) easing path, with markets scaling back rate-cut bets and now increasingly pricing in the possibility of a rate hike by year-end.

In Japan, the situation is particularly challenging given the country’s heavy reliance on imported energy, with a large share of its Oil supply sourced from the Middle East. A sustained rise in crude prices could weigh on Japan’s economic growth and trade balance. In the meantime, higher energy costs may keep inflation pressures elevated, potentially maintaining a tightening bias at the Bank of Japan (BoJ).

Meanwhile, persistent Yen weakness against the US Dollar is adding to the challenge, with USD/JPY hovering near levels that previously prompted official intervention from Japanese authorities.

Japan’s Finance Minister Satsuki Katayama said on Friday that Tokyo is in close contact with US authorities regarding foreign exchange developments and warned that the government will take all possible measures in the FX market, noting that rising Oil prices could significantly impact households and daily life.