GBP/JPY remains under pressure around 196.00 amid rallying UK bond yields
- GBP/JPY sees vulnerable as a significant increase in UK bond yields has weighed on the Pound Sterling.
- UK bond yields rallied after Chancellor Reeves presented new welfare bill.
- BoE Taylor sees five interest rate cuts this year.
The GBP/JPY pair trades cautiously near 196.00 during the Asian session on Thursday after posting a fresh weekly low around 195.40 the previous day. The cross faces a sharp selling pressure as the Pound Sterling (GBP) underperforms across the board due to a sharp increase United Kingdom (UK) bond yield, following speculation over the future of Rachel Reeves as Chancellor of the Exchequer.
10-year UK gilt yields soar almost 4% to near 4.61% on Wednesday after Chancellor Reeves presented new welfare scheme at the House of Commons on Tuesday.
Conservative members opposed Rachel’s welfare bill as it was in contradiction to her fiscal rules, which she committed to bring down ballooning UK fiscal deficit.
The speculation of Rachel’s resignation stemmed after UK Prime Minister Keir Starmer avoided Conservative leader Kemi Badenoch when she questioned about Rachel’s survival. However, Starmer has backed Rachel later as a spokesperson from the Downing Street said on his behalf that “She is going nowhere”.
Meanwhile, the endorsement of higher interest rate cuts by Bank of England (BoE) Monetary Policy Committee (MPC) member Alan Taylor at the European Central Bank (ECB) summit has also weighed on the Pound Sterling. Taylor anticipated five interest rate cuts and seen the neutral nominal rate at around 2.75 to 3 percent by the year end.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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