Japan’s proposed tax cuts and cash transfers without clear funding weigh on the JPY, widening the rate gap with the UK.
The GBP/JPY cross climbed above 212.00 in early European trading, extending gains as the Japanese Yen weakened. Renewed fiscal concerns, including a proposed cut in the food consumption tax and ¥600 billion in annual cash transfers, fueled selling pressure on the JPY.
Japan’s ruling party backed a plan to reduce the food tax to 1% from 8% for two years starting April 2027, alongside income-based relief measures. The lack of a defined funding mechanism heightened worries over Japan’s fiscal health, exacerbating the Yen’s decline.
A 275 basis point interest rate differential between the Bank of England’s 3.75% and the Bank of Japan’s 1.00% further supported the GBP/JPY rally, keeping carry trades active.