GBP/JPY edges higher as rising Oil prices weigh on Japan’s economic outlook

The British Pound (GBP) trades with a mild upside bias against the Japanese Yen (JPY) on Tuesday, as elevated Oil prices stemming from the ongoing US-Iran war weigh heavily on Japan’s economic outlook, keeping the Yen on the defensive against most major peers.

At the time of writing, GBP/JPY is trading around 211.60, hovering near one-week highs.

Traders remain cautious ahead of a key deadline set by US President Donald Trump, who warned Iran to “make a deal or open up the Strait of Hormuz” by 8:00 p.m. Eastern Time (00:00 GMT on Wednesday). Trump has threatened to target Iran’s energy and civilian infrastructure if no agreement is reached.

As a major net energy importer, Japan is particularly vulnerable to rising Oil prices, which increase the country’s import bill, widen trade deficits, and weigh on the currency. Japan’s Finance Minister Satsuki Katayama said authorities “will have to respond to the environment surrounding the Japanese economy, considering the Middle East situation,” adding that policymakers are “checking all scenarios, including optimistic and pessimistic ones, in terms of oil stockpiles.”

While higher inflation expectations may keep the Bank of Japan (BoJ) on a gradual tightening path, the hit to economic growth from elevated energy costs could limit the pace of further policy normalization.

Meanwhile, the UK is also a net energy importer, but its exposure is relatively lower than Japan’s, making the impact of the energy shock less severe.

Still, with economic growth already fragile and inflation remaining above the Bank of England (BoE) target, policymakers are expected to keep interest rates higher for longer, with markets pricing in up to two rate hikes by year-end.

Against this backdrop, the outlook for GBP/JPY remains tilted to the upside, supported by widening interest rate differentials. However, further gains may be limited, as intervention risks loom with USD/JPY trading close to the 160 level, an area that has previously triggered official action from Japanese authorities.

On the data front, the UK’s S&P Global Services Purchasing Managers Index (PMI) fell to 50.5 in March, down from 53.9 in February and marking its lowest level since April 2025. The reading also came in below the earlier flash estimate of 51.2. Meanwhile, the Composite PMI declined to 50.3 from 53.7. In Japan, focus turns to data due on Wednesday, including Labor Cash Earnings for February and the Current Account (n.s.a.) balance.