The GBP/JPY pair remained firm near a fresh yearly high around 204.50 during Wednesday’s European session, supported by ongoing weakness in the Japanese yen. The move comes as traders scale back expectations for further rate hikes from the Bank of Japan (BoJ) this year.
Fading BoJ tightening expectations
Market sentiment toward the yen deteriorated following the election of Japan’s new Prime Minister, Sanae Takaichi, who advocates for fiscal expansion and tax cuts while opposing tighter monetary policy. Analysts at MUFG noted that Japan’s rates markets have now priced out any additional BoJ hikes for this year, with the next possible policy tightening seen only in March 2026.
The diminishing hawkish outlook has weighed on the yen, which had previously strengthened on expectations of continued policy normalization by the central bank.
Pound outlook and BoE focus
While the pound sterling continues to outperform the yen, its performance against other major currencies remains mixed. Investors are closely watching upcoming comments from Bank of England (BoE) Chief Economist Huw Pill, scheduled for 15:00 GMT, for clues on the central bank’s policy direction.
Market participants remain divided on whether the BoE will opt for rate cuts later this year, as inflation persists at nearly double the 2% target and labor market conditions continue to weaken.
