GBP/JPY climbs to 205.00 as markets push back BoJ hike bets

• GBP/JPY rises for a fourth consecutive day, driven by sustained Yen weakness.
• Sanae Takaichi’s win in Japan’s ruling LDP leadership race fuels expectations of a slower BoJ tightening path.
• Monetary policy divergence between the BoE and BoJ continues to underpin the Pound’s strength.

The British Pound (GBP) continues to climb against the Japanese Yen (JPY) on Wednesday, with GBP/JPY extending its winning streak for a fourth consecutive day as the Yen remains broadly pressured in the wake of Sanae Takaichi’s victory in Japan’s ruling party leadership race.

At the time of writing, the cross is trading around 204.65, setting a fresh year-to-date high and marking its strongest level since July 17, 2024, up roughly 3.0% so far this week. Investors view Takaichi’s pro-stimulus policy stance as a sign that the Bank of Japan (BoJ) may delay further tightening, keeping the Yen on the defensive.

The yen’s latest slump underscores how politics and monetary policy remain tightly intertwined as traders trimmed expectations for a rate hike at the Bank of Japan's (BoJ) October 29-30 monetary policy meeting. Markets had previously been positioning for an October move after a run of firmer economic data and hawkish hints from policymakers, but the focus has now shifted to the December meeting.

Fresh data released earlier in the day added to the cautious mood. Government figures released earlier on Wednesday showed Japan’s nominal Labor Cash Earnings rose just 1.5% YoY in August, well below expectations of 4.1% and down sharply from 2.6% in July. Meanwhile, inflation-adjusted real wages fell 1.4% YoY, marking the eighth straight month of decline as rising prices continue to erode household purchasing power. The weak wage backdrop complicates the BoJ’s efforts to normalize policy, even as a weaker Yen threatens to fuel further imported inflation.

Former BoJ officials have cautioned that if the Yen’s slide accelerates toward the 152.00 mark against the US Dollar (USD), policymakers could be forced to act sooner to curb imported inflation. Japan’s Finance Minister Katsunobu Kato has also reiterated that authorities are prepared to address “excessive volatility” in the currency market, though traders remain skeptical about the likelihood of intervention unless the Yen’s slide accelerates further.

On the UK side, attention remains on the Bank of England’s (BoE) monetary policy path as it seeks to balance persistent inflation with slowing growth. While the BoE maintains a cautious stance, it keeps the door open to further tightening if price pressures remain sticky, whereas the BoJ is expected to delay additional moves amid weak wage growth and political pressure for fiscal support.