British Pound remains almost steady against Japanese Yen after BoJ’s dovish hold

• The British Pound has not faced a significant reaction against the Japanese Yen after BoJ’s policy decision.
• The BoJ leaves interest rates steady at 1.25%, with an 8-1 majority.
• Investors expect the BoE to hike interest rates to 4% next week.

The British Pound (GBP) remains almost stable against the Japanese Yen (JPY) at around 210.80 after the Bank of Japan’s (BoJ) monetary policy announcement.

The BoJ has left interest rates steady at 1.25%, with an 8-1 majority. BoJ board member Hajime Takata dissented the decision and voted in favor of a rate hike by 25 basis points (bps) to 1.50%.

In the September meeting, the BoJ hiked policy rates by 25 bps in the September meeting.

The BoJ was expected to leave policy rates unchanged as Governor Kazuo Ueda warned against quick monetary tightening in the September policy.

Analysts at Brown Brothers Harriman (BBH) said in a note that the BoJ is "widely expected to keep rates on hold at 1.25% and assess September’s 25bps hike before tightening again." They highlight Governor Kazuo Ueda’s cautious tone, recalling that "in September, BoJ Governor Kazuo Ueda warned that rapid rate hikes could unsettle asset prices, adding that it could take some time to confirm that 2% inflation is entrenched."

Meanwhile, investors await BoJ Governor Ueda’s press conference for fresh cues on the monetary policy outlook. Commerzbank said before the policy decision that “markets currently price an around 80% probability of a rate hike in December”.

On the United Kingdom (UK) front, financial markets shift their focus to the Bank of England’s (BoE) monetary policy announcement next week.

What to expect from BoE?

Strategists at Societe Generale argued that a BoE rate increase is effectively “nailed on in November,” pointing to a “brace of upside surprises for CPI and PPI output price inflation, and firmer wage data” as key drivers. They warn that this combination will “alert the MPC to the budding risk of second round effects” and “will almost certainly trigger a hawkish response on interest rates” at the next policy meeting on November 5.