The GBP/JPY pair reversed its two-day losing streak on Thursday, trading around 195.50 during the Asian session as the Japanese Yen (JPY) weakened following the Bank of Japan‘s (BoJ) decision to keep interest rates unchanged.
In line with market expectations, the BoJ maintained its short-term policy rate within the range of 0.15%-0.25% for the third consecutive meeting after its two-day policy review. The BoJ’s policy statement highlighted that inflation is expected to align with its price target by the latter half of its three-year projection period, extending into fiscal 2026. However, the central bank noted significant uncertainty regarding Japan’s economic and inflation outlook, with the potential for greater FX volatility impacting inflation due to changes in corporate wage and price-setting behaviors.
On the upside, the GBP/JPY pair benefited from a strengthening Pound Sterling (GBP), which gained traction amid growing expectations that the Bank of England (BoE) may keep interest rates unchanged later in the day while remaining focused on tackling elevated domestic inflation.
Recent UK inflation data showed the Consumer Price Index (CPI) rose 2.6% year-over-year in November, up from 2.3% in October. Core CPI, excluding food and energy, increased 3.5% YoY in November, compared to 3.3% previously. Annual services inflation held steady at 5%, slightly below the forecast of 5.1% but above the BoE’s target of 4.9%.
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