GBP/JPY struggles to break above 196.00 ahead of BoJ-BoE monetary policy

GBP/JPY faces pressure near 196.00, with investors awaiting the BoJ-BoE monetary policy outcome.
Both the BoJ and the BoE are expected to leave interest rates at their current levels.
Investors will also focus on the UK CPI data for May, which will be released on Wednesday.

Sagar Dua FXStreet

The GBP/JPY pair struggles to extend its upside above 196.00 from the last three trading sessions. During Asian trading hours on Monday, the cross has faced pressure near 196.00 again and has ticked down to near 195.50.

It seems that the cross will take a decisive break on either side after monetary policy announcements by the Bank of Japan (BoJ) and the Bank of England (BoE) on Tuesday and Thursday, respectively.

On Tuesday, the BoJ is expected to leave interest rates steady at 0.5% as officials need to be convinced that the underlying inflation will return around 2% before supporting further policy-tightening. BoJ officials have warned that the tariff policy by United States (US) President Donald Trump could impact its economic growth.

A Reuters poll in the June 2-10 period showed that none of the economists expected the Japanese central bank to raise its key borrowing rate in the monetary policy announcement on June 17. The survey also showed that a slight majority of economists expect the BoJ to keep interest rates steady at 0.5% by the year-end and hike in early 2026.

Meanwhile, the Bank of England (BoE) is also expected to keep interest rates steady at 4.25% on Thursday, as officials guided a “gradual and careful” monetary expansion approach in the last policy meeting, following a 25-basis-point (bps) rate reduction. Investors doubt that the BoE will maintain a moderate policy-easing guidance due to slowing labor market growth and faster-than-projected economic contraction in April.

Ahead of the BoE policy, investors will also focus on the United Kingdom (UK) Consumer Price Index (CPI) data for May, which is scheduled to release on Wednesday.

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.

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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