British Pound edges down against Japanese Yen on hawkish BoJ bets

The British Pound ticks lower against the Japanese Yen as the BoJ is expected to remain on a monetary tightening path.
Investors are confident that the BoJ will raise interest rates at the September meeting.
Financial markets await the UK employment and CPI data.

Sagar Dua FXStreet

The British Pound (GBP) faces mild selling pressure against the Japanese Yen (JPY) during the European trading session on Friday. The GBP/JPY pair edges down as the Japanese currency outperforms its peers amid firm expectations that the Bank of Japan (BoJ) will raise interest rates in the September policy meeting.

According to a report from Reuters, three sources familiar with the matter said that the BoJ IS set to raise interest rates as soon as September and is likely to hike more aggressively thereafter than the current pace of roughly twice a year.

The BoJ Summary of Opinions (BoJ) of the July meeting also showed that a majority of board members supported an upward monetary policy path after leaving interest rates unchanged at 1%.

Meanwhile, investors seek fresh remarks from Japan’s Ministry of Finance (MoF) regarding whether there would be more United State (US)-Japan joint intervention to counter excessive volatility in the Japanese currency. In late July, the US-Japan jointly intervened to prop up the Yen.

On the British currency front, financial markets shift their focus to the United Kingdom (UK) employment data for three months ending June and the Consumer Price Index (CPI) data for July, which will be released next week.

Investors will pay close attention to both data sets to get fresh cues about the Bank of England’s (BoE) monetary policy outlook.

Currently, financial markets are not anticipating any BoE interest rate hike in the near term.

BoE seen holding Bank Rate despite firmer UK growth

Analysts at Societe Generale argue that the latest data on UK activity is unlikely to shift the monetary policy outlook. They note that "even though GDP was slightly stronger than the BoE forecast, we don’t think it changes their calculus," as underlying dynamics remain consistent with a gradual cooling in the economy. In their view, "slack continues to build in the labour market, putting downward pressure on wage growth," and both Societe Generale and the BoE "believe the second half of the year is likely to experience softer growth that should limit firms’ pricing power to pass on their higher costs." Against this backdrop, the bank expects policy to stay on hold, stating that "if energy prices remain as they are, we believe the BoE will keep Bank Rate at 3.75% throughout 2026."

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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