GBP/JPY climbs further beyond mid-208.00s after BoJ’s widely expected 25 bps rate hike

• GBP/JPY regains positive traction following the overnight pullback from over a 17-year peak.
• The JPY drifts lower despite firmer inflation data and the expected BoJ rate hike decision.
• The BoE’s hawkish cut on Thursday underpins the GBP and acts as a tailwind for spot prices.

The GBP/JPY cross attracts some dip-buyers during the Asian session on Friday and stalls the previous day's late pullback from levels just above the 209.00 mark, or a fresh high since August 2008. Spot react stick to strong intraday gains after the highly-anticipated Bank of Japan (BoJ) decision and currently trade around the 208.70-208.75 region, up 0.25% for the day..

As was widely expected, the BoJ decided to hike interest rates to 0.75%, or a three-decade high, amid still sticky inflation in Japan. In fact, data released earlier today showed that Japan's National Consumer Price Index (CPI) remains well above the central bank's 2% target. The Japanese Yen, however, struggles to attract any meaningful buyers as bulls opt to wait for more cues about the BoJ's appetite for further policy tightening going into 2026. Hence, the focus remains on BoJ Governor Kazuo Ueda's comments during the post-meeting press conference, which will play a key role in influencing the JPY price dynamics and provide some meaningful impetus to the GBP/JPY cross.

Heading into the key central bank event risk, a generally positive risk tone is seen as another factor undermining the safe-haven JPY. The British Pound (GBP), on the other hand, continues to draw support from the Bank of England's (BoE) hawkish rate cut on Thursday. As was expected, the BoE MPC voted 5-4 to lower the benchmark interest rate by 25 basis points (bps) to 3.75%. A close vote split, however, revealed differences within the committee, especially after this week's inflation surprise. This, in turn, forced investors to scale back their expectations for more aggressive easing next year, which is seen acting as a tailwind for the GBP and the GBP/JPY cross.

Nevertheless, the BoE is still expected to lower borrowing costs next year. This marks a significant divergence in comparison to hawkish BoJ expectations. This would result in a further narrowing of the rate differential between Japan and other major economies, which should benefit the lower-yielding JPY and cap gains for the GBP/JPY cross. Nevertheless, spot prices remain on track to end on a positive note for the sixth straight week, though the fundamental backdrop warrants some caution before positioning for further appreciation.