GBP/JPY attracts some buyers to above 195.50 despite rising BoJ rate hike bets
- GBP/JPY gains traction to near 195.60 in Tuesday’s early European session.
- BoJ members saw scope to hike rates if the economy and prices move in line with the forecast, June minutes showed.
- The BoE is expected to cut interest rates at its August meeting on Thursday.
The GBP/JPY cross attracts some buyers to around 195.60 during the early European trading hours on Tuesday. The Japanese Yen (JPY) edges lower against the Pound Sterling (GBP) amid risk-on sentiment and political uncertainty in Japan. Traders await the Bank of England (BoE) monetary policy decision on Thursday for fresh impetus.
According to the minutes of the June Bank of Japan (BoJ) monetary policy meeting released on Tuesday, some policymakers saw scope to resume interest rate increases once trade friction caused by US tariffs eased. The minutes emphasized that most BoJ members supported keeping interest rates unchanged for the time being amid heightened uncertainty over US trade tariffs.
Hawkish June BoJ meeting Minutes reaffirmed rate hike bets and might provide some support to the JPY. However, domestic political instability might cap the upside for JPY after the ruling Liberal Democratic Party’s loss in the July 20 polls.
The BoE is widely anticipated to cut its key interest rate to 4.0% from 4.25% on Thursday amid rising unemployment in the UK economy and the hit to global trade from US tariffs. Financial markets have priced in more than 80% odds of BoE rate cuts at the August meeting and are penciling in a further quarter-point reduction before the end of the year.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.