GBP/JPY slips as quieter markets and weaker UK PMI readings cap upside
- GBP/JPY eases after failing to sustain a move above 212.00.
- Weaker UK PMI data weighs modestly on Sterling.
- Markets continue to weigh BoE easing signals against BoJ tightening expectations.
The British Pound (GBP) edges lower against the Japanese Yen (JPY) on Tuesday, with GBP/JPY paring part of the previous day's gains amid quieter market conditions. At the time of writing, the cross is trading around 211.45 after briefly climbing above the 212.00 psychological mark earlier in the Asian session.
The economic calendar is light on both sides on Tuesday. In the United Kingdom (UK), weaker Purchasing Managers Index (PMI) data added mild pressure on the Sterling after final S&P Global figures showed the Composite PMI easing to 51.4 in December from 52.1 in November. The Services PMI also came in at 51.4, down from 52.1.
Tim Moore, Economics Director at S&P Global Market Intelligence, said that lacklustre growth in UK service-sector activity persisted toward the end of 2025, with the pace of expansion coming in weaker than indicated by the earlier flash estimate for December. He also noted that inflationary pressures across the services economy strengthened, as input costs rose at the fastest pace in seven months and output charge inflation rebounded from November’s recent low, despite a subdued demand environment.
For the Bank of England (BoE), softer activity supports a more cautious growth outlook, but sticky services inflation suggests policymakers may remain reluctant to ease policy too quickly. This fits with guidance from the December meeting, where officials signalled that Bank Rate is likely to continue on a gradual downward path.
By contrast, the Bank of Japan (BoJ) is moving along a tightening path toward policy normalisation, with market expectations building around roughly 50 basis points (bps) of rate hikes through 2026.
Even so, the broader GBP/JPY bias has stayed tilted to the upside, as investors continue to favour the Pound over the Yen amid the still-wide interest-rate differential between the UK and Japan.
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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