GBP/JPY trades firmly near multi-year high while BoJ holds interest rates steady at 0.75%
- GBP/JPY remains strong near 214.30 after the BoJ left rates unchanged at 0.75%.
- Japan’s National CPI ex. Fresh Food decelerated to 2.4% in December, as expected.
- Investors await UK Retail Sales and the flash S&P Global PMI data.
The GBP/JPY pair trades close to its multi-year high of 214.30 during Friday’s Asian trading session, while the Bank of Japan (BoJ) has kept interest rates steady at 0.75%. The BoJ was expected to leave interest rates unchanged after raising them by 25 basis points (bps) at its last policy meeting of 2025 and guided that monetary policy will remain on a gradual expansion path.
Going forward, the major driver of the JPY will be the government's fiscal decisions, which aim to boost domestic spending. Japan's Prime Minister (PM) Sanae Takaichi will also dissolve the parliament’s lower house to pave the way for a snap election during the day.
Earlier in the day, Japan’s National Consumer Price Index (CPI) for December came in at 2.1% year-on-year (YoY), down from 2.9% in November. CPI data ex. Fresh Food, which is closely tracked by BoE officials, cooled down to 2.4% YoY, as expected, from the prior reading of 3%.
Meanwhile, the Pound Sterling (GBP) trades broadly calm ahead of the release of United Kingdom (UK) Retail Sales data for December and the preliminary S&P Global Purchasing Managers’ Index (PMI) data for January.
UK Retail Sales data, a key measure of consumer spending, is expected to have contracted steadily by 0.1% month-on-month (MoM). This would be the third straight decline in the consumer spending measure.
On the monetary policy front, market participants remain confident that the Bank of England (BoE) will remain on a gradual easing path, even as price pressures accelerated in December.
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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