- GBP/JPY faces downward pressure amid growing hawkish expectations for the BoJ’s policy stance.
- Japan’s 10-year government bond yield surpassed 1.5%, reaching its highest level in over 15 years.
- The Pound Sterling may recover as Bank of England officials strike a cautious tone.
GBP/JPY holds losses after registering gains in the previous four successive days, trading around 191.60 during the early European hours on Thursday. The decline comes as the Japanese Yen (JPY) strengthens in response to a hawkish outlook from the Bank of Japan (BoJ) on its monetary policy.
Japan’s 10-year government bond yield surged past 1.5% on Thursday, marking its highest level in over 15 years. This rise was influenced by a broader rally in European bond yields, following Germany’s announcement of a €500 billion infrastructure fund and plans to reform borrowing rules. These measures are expected to bolster growth in Germany, driving investor sentiment.
Bank of Japan Deputy Governor Shinichi Uchida reaffirmed this week that the central bank would consider further interest rate hikes if economic conditions meet expectations. Uchida emphasized that Japan is at the initial stages of exiting its prolonged monetary easing policy, signaling a potential shift towards a more restrictive stance.
On Thursday, Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, addressed concerns over rising global protectionism, including tariff measures. Mimura stressed the need to find a balanced approach to mitigating the negative effects of globalization while preventing an outright slide into protectionist policies.
The GBP/JPY cross could regain its ground following cautious remarks from Bank of England (BoE) officials. BoE Governor Andrew Bailey, testifying before the Treasury Select Committee on Wednesday, stated, “We do expect a pick-up in inflation, but it will be nothing like a few years ago. I think it's less likely we will get second-round inflation effects due to a weakening economy.”
Meanwhile, BoE policymaker Megan Greene, also speaking before the Treasury Committee, emphasized a cautious and gradual approach to easing monetary restrictions. Greene noted, “It's likely inflation persistence will fade on its own accord,” while reiterating that monetary policy will likely need to remain restrictive.
BoE Chief Economist Huw Pill also addressed lawmakers in Parliament, stating, “We do need to remain vigilant to new shocks that might hurt the path back to 2% inflation. Evidence points against more rapid cuts in bank rates for me.”
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD Gains look limited by 1.1570 Premium
EUR/USD trades well on the defensive for the second day in a row, revisinting the mid-1.1300s on the back of the continuation of the upside impulse in the US dollar. The move followed firmer US PMI data and news indicating the White House may be considering tariff cuts on Chinese imports.
GBP/USD deflates to the sub-1.3300 area, USD bulls prevail
GBP/USD remained on the back foot Wednesday, slipping below the 1.3300 level as the Greenback gained further traction. The Dollar’s solid performance was supported by strong US data and fading concerns over a renewed escalation in the US–China trade dispute.
Gold corrected extreme conditions, struggles around $3,300
Gold extended its decline on Wednesday, slipping below the $3,300 mark per troy ounce in response to reports from the media suggesting the Trump administration is weighing tariff reductions on Chinese goods, a news that revived hopes of easing trade tensions and reduced demand for the yellow metal as a safe-haven asset.
Bitcoin bullish momentum builds as premium exceeds 9% for first time in three months
Bitcoin price is extending its gains, trading above $94,000 at the time of writing on Wednesday, following a two-day rally of 9.75% so far this week. BTC rally gathers momentum as trade war fears ease, following US President Donald Trump’s downplaying of tensions with China.
Five fundamentals for the week: Traders confront the trade war, important surveys, key Fed speech Premium
Will the US strike a trade deal with Japan? That would be positive progress. However, recent developments are not that positive, and there's only one certainty: headlines will dominate markets. Fresh US economic data is also of interest.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.