GBP/JPY attracts some sellers below 193.50 despite Japan’s downbeat GDP data
- GBP/JPY weakens to around 193.40, down 0.20% on the day.
- Japan's economy shrank more than expected in Q1.
- Rising bets that the BoE may keep interest rates higher for longer could limit the GBP’s losses.
The GBP/JPY cross extends its downside to near 193.40 during the early European trading hours on Friday. The Japanese Yen (JPY) strengthens against the Pound Sterling (GBP) despite Japan’s disappointing GDP report.
Japan's economy shrank for the first time in a year and at a faster pace than expected. Japan’s Gross Domestic Product (GDP) contracted by 0.2% QoQ in the first quarter (Q1) of 2025, following a growth of 0.6% in Q4 of 2024, the preliminary reading released by Japan’s Cabinet Office showed on Friday. Markets expected a 0.1% decline. Meanwhile, the country’s GDP fell 0.7% YoY in Q1 versus 2.2% prior, below the market consensus of -0.2%. However, the downbeat GDP data has little to no impact on the JPY.
The Bank of Japan (BoJ) maintained its view that rising wages and prices would support a continued path toward policy normalization, supporting the JPY and creating a headwind for the cross. The Bank of Japan's April 30-May 1 Summary of Opinions, released earlier this week, suggested that policymakers maintain the view on hiking interest rates further.
On the other hand, the expectation that the Bank of England (BoE) may need to keep higher interest rates for longer than markets are currently pricing in might help limit the GBP’s losses in the near term. Markets have priced in a cut in interest rates of up to 48.6 basis points (bps) in total by the end of the year, with no change in policy at the next BoE meeting in June, according to Reuters.
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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