Japan’s plan to boost domestic pension fund investments in local assets sparks JPY buying, pressuring GBP/JPY below key levels.
The GBP/JPY cross fell below 217.00 in early European trading, reversing a two-day rally that peaked near 218.00, its highest since January 2008. The decline follows a broad-based Japanese Yen rally after Finance Minister Satsuki Katayama announced plans to encourage pension funds to increase holdings of domestic financial assets.
Japan’s government aims to reduce reliance on foreign investors amid rising bond issuance tied to fiscal expansion. Katayama also signaled gradual interest rate hikes and plans to expand household-targeted JGB products, adding to JPY support. Meanwhile, the British Pound found limited relief from reduced UK political uncertainty as Labour MPs nominated Andy Burnham to succeed Keir Starmer as prime minister on July 20.
The JPY’s strength triggered aggressive short-covering, weighing on GBP/JPY despite expectations of further Bank of England rate hikes.