Key Moments
- GBP/JPY traded down 0.3% to around 211.30 in early European hours, reversing part of a two-day rally.
- BoJ Governor Kazuo Ueda kept further interest rate hikes in play, contingent on incoming economic and price data.
- Market participants expect the Bank of England to cut interest rates in March amid softer labor conditions and easing inflation.
GBP/JPY Retreats After Two-Day Advance
The GBP/JPY cross slipped 0.3% to trade near 211.30 during the early European session on Thursday, pausing after a sharp rise over the previous two trading days. The move came as the Japanese Yen regained some ground, following comments from Bank of Japan (BoJ) Governor Kazuo Ueda that left the door open to additional interest rate hikes in the near term.
Intraday JPY Performance Against Major Currencies
Japanese Yen price action showed broad strength, with the currency registering gains against most major peers. The data indicated that the Yen was strongest against the US Dollar during the session.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | — | -0.11% | -0.04% | -0.30% | -0.10% | -0.19% | -0.19% | -0.13% |
| EUR | 0.11% | — | 0.07% | -0.17% | 0.02% | -0.08% | -0.07% | -0.02% |
| GBP | 0.04% | -0.07% | — | -0.21% | -0.05% | -0.15% | -0.14% | -0.09% |
| JPY | 0.30% | 0.17% | 0.21% | — | 0.18% | 0.10% | 0.08% | 0.16% |
| CAD | 0.10% | -0.02% | 0.05% | -0.18% | — | -0.09% | -0.09% | -0.04% |
| AUD | 0.19% | 0.08% | 0.15% | -0.10% | 0.09% | — | 0.00% | 0.06% |
| NZD | 0.19% | 0.07% | 0.14% | -0.08% | 0.09% | -0.00% | — | 0.05% |
| CHF | 0.13% | 0.02% | 0.09% | -0.16% | 0.04% | -0.06% | -0.05% | — |
The heat map reflects percentage moves between major currencies, with the base currency taken from the left-hand column and the quote currency from the top row. For instance, selecting the Japanese Yen as the base and moving across to the US Dollar cell shows the percentage change for JPY (base)/USD (quote).
BoJ Policy Outlook and Political Pushback
In an interview with the Yomiuri newspaper on Tuesday, BoJ Governor Kazuo Ueda noted that the central bank would thoroughly evaluate incoming data at its March and April policy meetings before deciding whether to raise interest rates later in the year. Ueda reiterated, “Our basic stance is to continue raising interest rates if the likelihood of our economic, price forecasts materialising heightens.”
Despite this guidance, markets remain skeptical about how soon any additional rate hikes might materialize. A report in the Mainichi daily on Tuesday indicated that Japan’s Prime Minister (PM) Sanae Takaichi is not supportive of the BoJ’s efforts to push rates higher. The report referenced a meeting between Takaichi and Ueda held on February 16.
Further uncertainty has been stirred by the nomination of Toichiro Asada and Ayano Sato to the BoJ’s nine-member board at a time when Takaichi’s remarks have pointed to a differing view on the policy path. Investors see this configuration as potentially limiting the BoJ’s ability to pursue a more hawkish trajectory, a backdrop generally seen as negative for the Japanese Yen.
Sterling Steady as Markets Price In BoE Rate Cuts
On the UK side, the Pound Sterling has been trading relatively flat, even as investors anticipate the Bank of England will deliver an interest rate cut at its March policy meeting. Expectations for a more dovish stance have been shaped by signs of a softening labor market in the United Kingdom and moderating inflation pressures.
Earlier in the week, Bank of England Monetary Policy Committee member Alan Taylor publicly supported implementing two to three rate cuts in the near term, pointing to downside risks to employment and an easing in price growth.
Bank of Japan – Structure and Policy Background
The Bank of Japan (BoJ) is Japan’s central bank, responsible for setting monetary policy and issuing banknotes. Its mandate includes exercising currency and monetary control with the objective of maintaining price stability, defined as an inflation target of around 2%.
The BoJ launched an ultra-loose policy framework in 2013 to stimulate growth and lift inflation in a low-inflation environment. This approach has centered on Quantitative and Qualitative Easing (QQE), under which the bank creates money to purchase assets, including government and corporate bonds, to supply liquidity.
In 2016, the BoJ expanded this stance by introducing negative interest rates and implementing direct control over the yield on 10-year Japanese government bonds. In March 2024, the BoJ lifted interest rates, marking a shift away from its previous ultra-loose position.
Impact of BoJ Policy on the Yen
The BoJ’s large-scale stimulus operations contributed to a decline in the Yen’s value against major currencies. This trend intensified in 2022 and 2023, as other major central banks sharply raised interest rates to combat elevated inflation, widening the rate differential with Japan and weighing further on the Yen.
A partial reversal emerged in 2024 following the BoJ’s move to step back from its ultra-loose policy. The earlier depreciation of the Yen, combined with higher global energy prices, pushed Japanese inflation above the BoJ’s 2% target. Expectations for rising wages, a key driver of sustained inflation, also played a role in the decision to begin unwinding the accommodative stance.
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