The GBP/JPY cross recovers a few pips from the vicinity of the weekly trough, though it lacks follow-through buying and trades around mid-216.00s during the early European session on Thursday.
The Japanese Yen (JPY) continues its struggle to attract any meaningful buyers amid concerns about Japan’s deteriorating fiscal position due to massive national debt and new spending plans
Adding to this, the wide interest rate gap between Japan and other major economies undermines the JPY, which, in turn, is seen as a key factor supporting the GBP/JPY cross. The Bank of Japan (BoJ) increased its short-term policy rate to 1.00% in June, which is the highest level in 31 years. Meanwhile, the Bank of England (BoE) has maintained its benchmark rate at 3.75%, leaving a sizeable difference of around 275 basis points (bps).
This keeps the so-called JPY carry trade and might continue to act as a tailwind for the GBP/JPY cross. Strategists at Scotiabank highlight that the upcoming BoJ meeting is “currently priced for about 20bpts of tightening, offering some scope for additional near-term strength” in the JPY. However, they caution that “greater risk lies with the central bank’s tone as policymakers manage expectations for the rate path into year-end and into early 2027,” suggesting that guidance on the policy trajectory may prove more market-sensitive than the modest adjustment already anticipated.