GBP/JPY gathers strength above 201.50 as Sanae Takaichi wins LDP election
- GBP/JPY strengthens to near 201.70 in Monday’s early European session.
- Sanae Takaichi will become Japan’s first female Prime Minister after winning the LDP leadership election on Saturday.
- Worries over UK labor market risks might cap the upside for the cross.
The GBP/JPY cross climbs to around 201.70, the highest since July 2024, during the early European session on Monday. The Japanese Yen (JPY) weakens against the Pound Sterling (GBP) as a ruling-party vote for Sanae Takaichi to become Japan’s next Prime Minister.
Takaichi was elected as the leader of Japan's ruling Liberal Democratic Party (LDP). Takaichi would become the first female Prime Minister of Japan and is expected to oppose any further monetary tightening by the Bank of Japan (BoJ), which weighs on the JPY. A vote in parliament to replace outgoing Shigeru Ishiba is scheduled on October 15.
“Sanae Takaichi’s surprise victory in the LDP leadership election marks an important turning point for Japan’s policy and market outlook,” Societe Generale strategists wrote in a note, pushing back the likely timing of the BOJ’s next rate hike to December from October.
Traders reduce their bets of a Bank of Japan (BoJ) rate hike at its October meeting. Overnight index swaps are currently priced in nearly a 25% odds of an increase, down from 60% odds before the Liberal Democratic Party’s (LDP) leadership vote.
Growing UK labor market concerns could create a headwind for the cross. Bank of England’s (BoE) Decision Maker Panel (DMP) survey last week showed that firms' year-ahead expectations for employment came in flat in the three months to September. This is the first time since the quarter to November 2020, when companies didn't anticipate increasing their staff numbers. The UK central bank is likely to hold rates steady through the end of 2025, with potential cuts expected in 2026.
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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