Japanese Yen weakens against Pound Sterling as BoJ decision looms

• GBP/JPY holds modest gains as the Japanese Yen remains on the back foot.
• UK Autumn Budget draws a muted reaction, while traders expect a BoE rate hike in November.
• Traders await Tokyo inflation data and the BoJ’s interest rate decision, both due on Friday.

GBP/JPY holds modest gains on Thursday as the Japanese Yen (JPY) underperforms most of its major peers. Investors assess the UK Autumn Budget and await the Bank of Japan’s (BoJ) monetary policy announcement on Friday. At the time of writing, the cross trades around 210.64, up 0.15% on the day.

UK Chancellor John Healey presented his first Budget on Wednesday, sticking to the government’s fiscal rules. Key measures include £100 in energy support for eligible households, an extension of the fuel duty cut and higher taxes on banks, savers and landlords. The government also has £15 billion in fiscal headroom for 2029-30.

UK Budget seen as neutral for Pound and gilts despite firmer fiscal drag

Strategists at Brown Brothers Harriman judge that the UK October 2026 Budget “is neutral for GBP and gilts,” noting that while “the government modestly increased fiscal tightening” it also “plans to issue slightly more debt.” They highlight that the “cyclically adjusted primary balance, which excludes interest costs and adjusts for the economic cycle, is projected to improve from a deficit of -0.3% of GDP in 2026/27 to a surplus of +0.5% in 2027/28.”

This shift implies “a fiscal drag of 0.8% of GDP, up from 0.6% projected in March,” but BBH cautions that “the additional fiscal restraint is probably too modest to materially curb the nearly 125bps of BoE rate hikes implied over the next twelve months.”

The BoE announces its interest rate decision on November 5, with traders fully pricing in a 25 bps hike. The central bank has kept rates unchanged so far this year as policymakers saw limited signs of higher energy costs spreading into broader prices and wages. However, the latest rise in inflation, alongside steady labour market and growth figures, has strengthened the case for a November rate hike.

Meanwhile, the Bank of Japan (BoJ) is expected to keep interest rates unchanged at Friday’s meeting after delivering a cumulative 50 basis points (bps) of tightening earlier this year. The BoJ’s updated growth and inflation forecasts, alongside Governor Kazuo Ueda’s press conference, will be closely watched as traders anticipate another hike in December.

Ahead of the decision, Tokyo’s October inflation figures and September unemployment data will offer fresh insight into price pressures and labour market conditions.