The GBP/JPY cross extended its pullback on Friday, dropping toward 199.50 after retreating from Thursday’s peak of 201.25—the highest level since July 2024. Renewed demand for the Japanese Yen (JPY) following the Bank of Japan’s (BoJ) policy decision drove the pair lower, pushing it to the bottom of its weekly range.
BoJ decision lifts yen demand
As expected, the BoJ left its short-term interest rate target unchanged at 0.4%–0.5% following its two-day policy meeting. However, two board members dissented, favoring a rate hike, which gave the JPY an additional intraday boost. Market participants are increasingly pricing in the likelihood of a 25-basis-point (bps) hike in October, underscoring Japan’s economic resilience and widening the policy gap with the Bank of England (BoE).
Policy divergence pressures GBP/JPY
The BoE has signaled scope for further rate cuts, reinforcing the policy divergence with the BoJ and amplifying downward pressure on GBP/JPY. The yen’s relative strength highlights investor preference for the Japanese currency in the near term, particularly as expectations of BoJ normalization gain traction.
Caution ahead of Ueda’s remarks
Despite the JPY’s momentum, traders remain cautious. Domestic political uncertainty could provide the BoJ with justification to delay future hikes, while Japan’s August core consumer price index (CPI) rose at its slowest pace in nine months, tempering hawkish bets. Market focus now shifts to comments from BoJ Governor Kazuo Ueda, which are likely to provide fresh direction for GBP/JPY.
