- The Pound retreated against the Yen following the BoJ’s decision.
- Disappointing UK figures seen last week have undermined Sterling’s rally.
- The longer-term trend remains positive, with all eyes on this week’s BoE decision.
The Pound extended its reversal from Monday’s high at 196.85 after the Bank of Japan released its monetary policy decision on Tuesday, but, so far, the pair has remained steady above last week’s highs at 196.00. The longer-term bias remains positive.
The Bank of Japan left its benchmark interest rate unchanged, at 0.5%, as widely expected, and pointed to a slowdown on bond tapering from April 2026 in a move, they say, aimed to support market stability.
BoJ Governour, Kazuho Ueda, tried to convey a neutral message, but refused to commit to any monetary tightening in the coming months. He warned about the uncertain global trade scenario and observed that inflation is not rising in an accelerated way, which might hint at a dovish tweak from previous rhetoric.
The GBP/JPY retreated after the event, but mainly due to Sterling’s weakness, rather than a particular Yen strength. The Pound depreciates 0.2% against the US Dollar and 0.3% against the Euro on the day.
The UK calendar is light today, but the downbeat UK GDP, employment, and Industrial Production figures shown last week have left the GBP on the defensive ahead of Thursday’s interest rate decision by the Bank of England.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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