GBP/JPY drifts within two-week range as BoE easing expectations build

• GBP/JPY holds within a two-week range on Monday amid holiday-thinned trade.
• Sterling struggles for direction amid growing BoE rate cut expectations.
• Markets await Friday’s Tokyo CPI and Industrial Production data from Japan.

GBP/JPY trades with a mild negative bias on Monday, as a market holiday in Japan and a sparse UK economic calendar keep liquidity thin. In the absence of fresh catalysts, the British Pound (GBP) is struggling to gain meaningful traction against the Japanese Yen (Yen), leaving the cross confined within a well-established two-week range.

At the time of writing, GBP/JPY trades near 208.80, rebounding slightly from an intraday low of 208.22.

Growing expectations of interest rate cuts by the Bank of England (BoE) are weighing on the British Pound, as traders increasingly anticipate the central bank will lower borrowing costs as soon as March amid softer labor market conditions and easing inflation pressure.

Interest rate cut expectations were further reinforced by dovish remarks from BoE policymaker Alan Taylor earlier in the day. Taylor said there are “two or three more cuts to go before reaching a neutral rate.” He warned that weaker-than-expected productivity growth could pose a risk to the outlook and added that he now sees a risk of inflation undershooting the target. Taylor also said the Bank would respond to any downside shocks.

In Japan, sentiment remains fragile as traders weigh Prime Minister Sanae Takaichi’s fiscal stimulus stance, which could complicate the policy outlook and potentially delay interest rate hikes by the Bank of Japan (BoJ).

At the same time, softer inflation readings released last week added to the cautious tone. Japan’s National Consumer Price Index (CPI) rose 1.5% YoY in January, slowing from 2.1% in December.

Core measures also eased, with CPI excluding food and energy moderating to 2.6% from 2.9%, while CPI excluding fresh food slowed to 2.0% from 2.4%. The cooling in price pressures strengthens the case for the BoJ to remain patient before raising borrowing costs further.

Looking ahead, the UK economic calendar remains relatively quiet this week, with no major data releases scheduled, although a few BoE policymakers are expected to speak.

In Japan, traders brace for key releases on Friday, including the Tokyo CPI for February, January Industrial Production, Large Retailer Sales, and Retail Trade data.