GBP/JPY falls to five-day low as Ueda’s hawkish tone lifts the Yen
- The British Pound weakens against the Yen as hawkish BoJ commentary boosts JPY demand.
- BoJ Governor Ueda hints that a December rate hike remains under consideration, lifting market expectations.
- UK Manufacturing PMI rises above 50 for the first time in over a year but offers limited support for Sterling.
The British Pound (GBP) softens against the Japanese Yen (JPY) at the start of the week as hawkish comments from the Bank of Japan (BoJ) Governor Kazuo Ueda lift the Yen across the board. GBP/JPY trades near 205.25 at the time of writing, marking its lowest level in five days.
BoJ Governor Kazuo Ueda signalled on Monday that policymakers will actively weigh the pros and cons of a rate increase at the December monetary policy meeting. Ueda warned that delaying a rate hike too long could cause sharp inflation and force the central bank to make a rapid policy adjustment. He also noted, “I want to elaborate more on the future rate hike path once we raise rates to 0.75%,” suggesting that clearer forward guidance will follow the next move.
He added that the central bank is closely monitoring wage trends and underlying demand conditions, noting that the BoJ is “actively collecting” data on the wage outlook ahead of its December policy meeting. Ueda also emphasised that a mix of the government’s proactive fiscal policy and the BoJ’s adjustment of monetary support will help Japan move toward a more sustainable economic growth path.
Markets interpreted Ueda’s remarks as a clear signal that a December rate hike remains on the table. According to a Reuters report, his comments led traders to price in roughly an 80% chance of a rate increase at the December 18-19 meeting, up sharply from around 60% a week earlier.
Japan’s 10-year government bond yield also surged above 1.85% immediately after Ueda’s comments, marking its highest level since July 2006.
On the UK side, domestic indicators offer limited support for Sterling, with the latest S&P Global survey showing the seasonally adjusted UK Manufacturing PMI rising to a 14-month high of 50.2 in November from 49.7 in October, marking the first reading above the 50.0 neutral threshold since September 2024.
S&P Global’s Rob Dobson noted that “the numbers are especially encouraging as this improvement occurred despite November seeing elevated levels of business uncertainty, and in some cases an element of gloom, ahead of the Autumn Budget.”
Looking ahead, traders will pay close attention to remarks from BoE policymaker Swati Dhingra later on Monday for cues ahead of the December 18 meeting. Focus then shifts to Tuesday’s release of the Financial Stability Report and the accompanying Financial Policy Committee (FPC) Meeting Minutes.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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