GBP/JPY climbed for a fourth straight session on Thursday, hitting 205.52 during Asian trading—the highest level since July 2024. The move comes as the Japanese Yen (JPY) softens amid expectations that Prime Minister Sanae Takaichi will unveil a fiscal stimulus package exceeding JPY 20 trillion.
Members of Japan’s ruling Liberal Democratic Party (LDP) have also proposed a supplementary budget of more than JPY 25 trillion to support the package, almost double last year’s JPY 13.9 trillion extra budget. The sheer scale of the planned spending has sparked market concern over Japan’s fiscal outlook, putting added pressure on the Yen.
BoJ rate-hike expectations may cap Yen losses
Despite the Yen’s decline, GBP/JPY’s upside could face resistance as markets position for a possible Bank of Japan (BoJ) rate hike. A Reuters poll showed the BoJ appears poised to lift rates to 0.75% from 0.50% at its December 18–19 meeting. Forecasts remain finely balanced, with 53% of economists expecting a December move, and all longer-term projections pointing to rates reaching at least 0.75% by the end of Q1 2026.
BoJ board member Junko Koeda said Thursday that supply–demand indicators show the output gap near zero and that labour-market conditions remain tight amid persistent worker shortages. Koeda argued that the BoJ must continue raising the policy rate and adjust its stance in line with improving economic and price trends, reinforcing expectations of further tightening.
Pound may soften as UK rate-cut expectations rise
GBP/JPY could face headwinds from the Pound’s side as well. Signs of cooling UK inflation have strengthened expectations for a Bank of England (BoE) rate cut in December. Following the latest CPI report, markets increased the probability of a December BoE cut to 85%, up from 80% prior to the release.
