GBP/JPY weakens after Takaichi defeat removes impediment to rate hikes

GBP/JPY sells off following the defeat of Sanae Takaichi in the Japanese ruling party’s leadership run off.
Takaichi had warned that if elected she would restrict the BoJ from raising interest rates.
The Pound pulls back after Bailey indicates steady return to more normal rate environment.

Joaquin Monfort FXStreet

GBP/JPY declines by almost one and a half percentage points to trade in the 191.50s on Friday after the news that former Japanese defense minister Shigeru Ishiba beat his opponent Sanae Takaichi to win the ruling-LDP party’s leadership race run-off. Ishiba won by 215 votes to Sanae Takaichi’s 194 votes.

The Japanese Yen had weakened on concerns Takaichi might win after she said that if elected she would not allow the interest rates to rise because a weak Yen was positive for exports. Her defeat now means she will not be able to restrict rate hikes.

The Yen’s immediate reaction was to strengthen in all its pairs. The expectation of higher interest rates is positive for the currency since it reduces capital outflows to currencies offering higher returns.

GBP/JPY came under further pressure after the Japanese Yen rose following the release of Tokyo inflation data early on Friday. The data showed the Tokyo Consumer Price Index (CPI) rose 2.2% in September, which whilst lower than the 2.6% previously, was in line with the BoJ’s forecast and the median. BoJ Governor Kazuo Ueda had said that if inflation data met the bank’s forecasts it would go ahead with plans to lift interest rates.

The Pound Sterling, meanwhile, remains on a weaker footing after the Governor of the Bank of England (BoE) Andrew Bailey said earlier in the week that he saw interest rates continuing to fall gradually. Lower interest rates are negative for the Pound as they reduce capital inflows.

“I do think the path for interest rates will be downwards, gradually, to the ´neutral’ rate,” Bailey said on Tuesday. The neutral rate of interest is the long run equilibrium level, or “ideal” level for interest rates in the economy.

His remarks come after a close call five-to-four vote at the BoE’s August meeting backed up a quarter point cut from the bank, pushing borrowing costs down to 5.00%. Financial markets, meanwhile, are pricing in a drop to 4.5% by the end of 2024, and lower to 3.5% by the end of 2025.

GBP/JPY was buoyed on Wednesday, however, after BoE policymaker Megan Greene was more hawkish than Bailey when she said that a “cautious, steady-as-she-goes approach to monetary policy easing is appropriate.”

Greene added “I believe the risks to activity are to the upside, which could suggest that the long-run neutral rate is higher and - all else equal - our stance of policy isn’t as restrictive as we had thought.” Greene was one of four on the MPC who voted to hold rates in August.

Author

Joaquin Monfort

FXStreet

Joaquin Monfort is a financial writer and analyst with over 10 years experience writing about financial markets and alt data. He holds a degree in Anthropology from London University and a Diploma in Technical analysis.

AUD/USD eyes 0.7150 barrier nine-day EMA

AUD/USD inches higher after registering modest losses in the previous day, trading around 0.7130 during the Asian hours. The technical analysis of the daily chart indicates that the pair is moving sideways within the rectangle pattern, suggesting a consolidation as neither the bulls nor the bears have enough momentum to take control of the market.

USD/JPY trades below 160.00 intervention threshold; bullish bias intact

The USD/JPY pair attracts some sellers during the Asian session amid fears that authorities will step in again to prop up the Japanese Yen. Furthermore, the Israel-Lebanon truce prompts some profit-taking around the US Dollar and exerts downward pressure on the currency pair.

Gold meets contention near $4,420…for now

Gold extends its recovery past the $4,500 mark per troy ounce on Thursday. The yellow metal’s advance comes amid the resurgence of some selling interest around the, improving risk sentiment, and declining US Treasury yields across the curve.

Bitcoin’s massive storm is back: Why the sell-off is far from over

Bitcoin price action over the last few weeks has felt less like a normal, healthy correction and more like a slow grinding crash that continues to wreak havoc on holdings and trading accounts. And everything suggests that the dramatic crash isn’t over.

Nonfarm payrolls: Testing the limits of Fed policy patience

The upcoming nonfarm payrolls report for May will provide the final update on the US labor market before Kevin Warsh attends his first policy meeting as the new Fed Chair later this month.

Recession on paper: What really moves the Canadian Loonie now?

Statistics Canada handed the headline writers a gift and the analysts a headache. Real GDP shrank 0.1% on an annualized basis in the first quarter, and with the fourth quarter of 2025 revised down to a 1.0% contraction, that is two negative quarters in a row, the textbook definition of a technical recession and Canada's first since the pandemic.