British Pound trades lower against Japanese Yen ahead of BoE’s policy outcome

• GBP/JPY falls to near 212.93 as the British Pound faces slight selling pressure ahead of BoE’s policy.
• The BoE is widely anticipated to hike interest rates by 25 bps to 4%.
• Investors would pay more attention to BoE’s communication on the interest rate outlook.

The British Pound (GBP) is down 0.16% to near 212.93 against the Japanese Yen (JPY) during the European trading session on Thursday. The cross is under pressure as the British currency trades with caution ahead of the Bank of England’s (BoE) monetary policy announcement at 12:00 GMT.

BoE seen kicking off tightening cycle with modest hike as UK data firms

Strategists at Brown Brothers Harriman (BBH) highlight Thursday’s BoE policy decision and accompanying Monetary Policy Report, noting that the central bank is “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” They point out that “firmer UK inflation and economic activity back the move,” while the anticipated vote split is “seen at 7-2 with doves Alan Taylor and Swati Dhingra supporting a hold,” underscoring that not all policymakers are yet convinced of the need to begin a new tightening phase.

With financial markets looking confident that the BoE will kick-off a monetary tightening cycle, investors would pay more attention to remarks over the interest rate outlook.

Pound seen at risk if BoE hints at slowing rate path

Analysts at Societe Generale caution that the Pound’s recent resilience could be tested by the tone of the BoE’s upcoming communication. They argue that “if the BoE’s guidance on Thursday shows any hesitation about how much further they need to go, the pound could start looking vulnerable,” even though, in their view, “it is probably too early for them to give the appearance of slowing down.”

On Tokyo front, investors seek fresh cues about how much the Bank of Japan (BoJ) will hike interest rates in the ongoing monetary tightening cycle.

Going forward, investors will focus on Labor Cash Earnings data, a key measure of wage growth, for September, which will be released on Friday. The data is seen remaining steady at 3.8% Year-on-Year (YoY).