GBP/JPY stays firm near multi-year highs as focus shifts to BoE and BoJ decisions

• GBP/JPY holds near multi-year highs as the Yen underperforms despite rising BoJ rate-hike expectations.
• Weak UK GDP data fails to derail Sterling’s strength against the Japanese Yen.
• Markets look ahead to the BoE and BoJ interest rate decisions scheduled for next week.

The British Pound (GBP) trades on the front foot against the Japanese Yen (JPY) on Friday, as the Yen struggles to gain traction despite growing expectations of a Bank of Japan rate hike next week. At the time of writing, GBP/JPY is hovering near 208.64, holding close to its highest level since August 2008 and on track for a fifth consecutive weekly gain.

In the United Kingdom (UK), weaker-than-expected growth data did little to dent Sterling’s strength against the Yen, even as the Pound eased against other major counterparts. Data released earlier showed that Gross Domestic Product (GDP) contracted by 0.1% MoM in October, undershooting expectations for a 0.1% expansion and matching the previous month’s decline.

Looking ahead, traders are turning their attention to the Bank of England’s (BoE) interest rate decision on December 18, with markets widely expecting a 25 basis point rate cut. Investors are currently assigning nearly a 90% probability that the BoE will lower its policy rate to 3.75%.

In Japan, the Yen’s muted response reflects lingering skepticism over how far and how fast the BoJ is willing to tighten policy. Bloomberg reported earlier in the day that BoJ officials increasingly see next week’s meeting as just the opening phase of a broader tightening cycle. According to people familiar with the matter, policymakers consider it likely that interest rates will rise above 0.75% before the current hiking cycle is over.

A recent Reuters poll showed that around 90% of economists expect the central bank to raise its policy rate to 0.75% at the December 19 meeting. More than two-thirds of respondents also see rates climbing further to at least 1.00% by the end of next year.

However, a separate report from Reuters suggests the BoJ is keen to avoid locking markets into a predefined tightening path. Sources familiar with the discussions said the central bank does not plan to release an updated estimate of the neutral interest rate, nor use it as a key communication tool to signal the timing or pace of future rate hikes.