GBP/JPY tumble to near 190.60 amid BoJ rate hike prospect

GBP/JPY faces some selling pressure to near 190.60 in Monday’s early European session.
BoJ's hawkish monetary policy outlook and safe haven demand underpin the Japanese Yen.
BoE Bailey endorsed a gradual path for “removing monetary policy restrictiveness.”

The GBP/JPY cross attracts some sellers to around 190.60 during the early European trading hours on Monday. The Japanese Yen (JPY) gathers strength against the Pound Sterling (GBP) amid the hawkish expectations of the Bank of Japan (BoJ) and the safe-haven demand.

Hawkish signals from the BoJ were key support for the JPY after Deputy Governor Shinichi Uchida said that the Japanese central bank did intend to raise interest rates further. Still, Uchida ruled out a hike at the BOJ’s upcoming meeting in March.

Furthermore, the escalating concern over a global trade war further boosts the JPY's relative safe-haven status and creates a headwind for GBP/JPY. Late Sunday, US Commerce Secretary Howard Lutnick said that the 25% tariffs on steel and aluminum imports, set to take effect on Wednesday, are unlikely to be postponed.

The Bank of England (BoE) governor Andrew Bailey said the bank will consider further rate cuts but will take "a gradual and careful approach” as the inflation persistence is less likely to fade on its own accord. Traders await forecasts of the Office for Budget Responsibility (OBR) on March 26, at a time when Finance Minister Rachel Reeves is pressured to clarify how she would balance the books without breaking her own fiscal rules.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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.