British Pound edges higher against Japanese Yen with BoE decision in focus

• GBP/JPY edges higher as the Japanese Yen remains under pressure against most of its major peers.
• BoE rate hike expectations and easing UK fiscal concerns support the Pound.
• The BoJ's hawkish signals and intervention warnings offer little support to the Yen.

GBP/JPY edges higher on Monday as the Japanese Yen (JPY) struggles despite the Bank of Japan’s (BoJ) hawkish signals. Meanwhile, reduced fiscal uncertainty following the UK’s Autumn Budget supports the British Pound (GBP) as traders turn their attention to this week’s Bank of England (BoE) monetary policy announcement. At the time of writing, the cross trades around 211.87, up 0.44% on the day, after briefly climbing above 212.

The BoE announces its interest rate decision on Thursday, with a 25-basis-point (bps) increase fully priced in by markets as soaring energy costs drive inflation higher. Steady labour market conditions and resilient growth also give policymakers room to raise borrowing costs.

Analysts at ING note that Sterling is “trading reasonably well,” supported by the market’s conviction that “high energy prices leave the Bank of England no alternative but to hike rates on Thursday.” They add that “a 25bp rate hike to 4.00% looks like a done deal,” with sentiment toward the Pound further bolstered by “upside economic surprises, UK fiscal policy seemingly heading in the right direction and warmer ties with the EU,” all helping Sterling too.

OCBC argues that "GBP resilience should extend into early 2027 as fiscal discipline, resilient growth and political stability remain supportive." However, they caution that "with substantial BoE tightening already priced in, further gains will require increasingly positive UK surprises."

On the other side of the cross, the Japanese Yen (JPY) remains under pressure despite the BoJ’s hawkish stance, as elevated energy prices also push other central banks toward tighter policy. Interest rates elsewhere remain well above Japan’s, keeping yield differentials wide.

As widely expected, the BoJ kept interest rates unchanged at 1.25% on Friday, while signalling further increases if the economy and prices evolve in line with its projections. In its full quarterly outlook report released on Monday, the BoJ said underlying inflation had risen toward 2%, with gradual progress toward anchoring it at that level. It added that further rate increases would likely ease price pressures and support consumption.

Meanwhile, the Yen drew little support from renewed intervention warnings. Japanese Finance Minister Satsuki Katayama reiterated on Monday that authorities remained ready to act against disorderly currency moves and that Japan’s joint foreign exchange statement with the US remained in effect.