GBP/JPY declines as BoE hawkish hold fails to offset Yen strength

GBP/JPY trades with a downside bias on Thursday as the Japanese Yen (JPY) strengthens broadly following the Bank of Japan’s (BoJ) monetary policy decision, while the British Pound (GBP) struggles to gain ground against the Yen despite showing relative strength against other major currencies after the Bank of England’s (BoE) hawkish hold.

At the time of writing, the cross is trading around 211.07, down roughly 0.42% on the day.

Both the BoE and the BoJ kept interest rates unchanged at their latest policy meetings, in line with market expectations, while flagging rising concerns over inflation driven by elevated energy prices amid ongoing Middle East tensions.

Notably, the BoE delivered a surprisingly unanimous decision to hold rates at 3.75%, reinforcing its hawkish stance. In its statement, the Committee said it will “continue to monitor the situation in the Middle East and its impact on global energy supply and energy prices closely,” adding that it “stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.”

The BoE revised its inflation outlook higher, expecting CPI to average around 3% in Q2 2026, up from 2.1% in its February projections. Governor Andrew Bailey said, “War in the Middle East has pushed up global energy prices. You can already see that at the petrol pump and if it lasts it will feed into higher household energy bills later in the year.”

Meanwhile, the BoJ also kept its policy rate unchanged at 0.75% in an 8-1 decision, with board member Hajime Takata dissenting in favor of a 25 basis point (bps) rate hike.

The central bank reiterated that it will continue to raise its policy rate if the economy and prices evolve in line with its forecasts, adding that it will conduct monetary policy as appropriate from the perspective of sustainably and stably achieving its 2% inflation target. It also highlighted risks to Japan’s economic outlook, including developments in the Middle East, movements in Oil prices and excessive Yen weakness.

BoJ Governor Kazuo Ueda said, “Inflation is expected to face upward pressure from higher oil prices.” He added, “It is difficult to say whether the focus should be on curbing inflation or supporting the economy,” noting that “it is unclear how long it will take to assess the impact of energy shocks on underlying prices.”