GBP/JPY rises to near 192.00 after BoJ’s Ueda speech
- GBP/JPY drifts higher to around 191.95 in Thursday’s early European session.
- BoJ’s Ueda said uncertainty stems from trade policies.
- Traders raise their bets that the BoE will cut its interest rates by 25 bps in the May meeting.
The GBP/JPY cross gains ground to near 191.95 during the early European session on Thursday. The Japanese Yen (JPY) softens against the Pound Sterling (GBP) after the Bank of Japan (BoJ) kept interest rates steady and slashed its growth forecasts on Thursday.
As widely expected, the BoJ board member decided to keep the short-term policy rate unchanged in the range of 0.40%-0.50% by a unanimous vote at its May meeting on Thursday. BoJ noted in the statement that the economy is likely to slow as trade policy impact slows global growth.
BoJ Governor Kazuo Ueda said during the press conference that Japan's economy is recovering moderately, however, some weakness is still there. Ueda further stated that economic and price projections depend on how countries deal with US tariffs, and the central bank is expected to keep raising rates if the economy and prices move in line with projections.
On the GBP’s front, traders have become increasingly confident that the Bank of England (BoE) will cut its interest rates by 25 basis points (bps) in the May meeting. This, in turn, might drag the GBP lower against the shared currency. Financial markets have priced in nearly a 96% possibility that the BoE will cut its rate by a quarter-point to 4.25% when it announces its next move on May 8, according to a Reuters poll.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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