The British Pound (GBP) bounced back against the Japanese Yen (JPY) on Wednesday. Earlier, GBP declined after UK Chancellor Rachel Reeves delivered a pre-budget speech. GBP/JPY is now trading around 200.60, recovering from a low of 199.07 during the day. Recent Purchasing Managers Index (PMI) data supports the UK economy. The Services PMI climbed to 52.3 in October, surpassing both the flash estimate and last month’s figure. The Composite PMI also rose to 52.2, the highest level since May.

Upcoming Bank of England Decision

Market attention is on the Bank of England’s (BoE) interest rate decision, expected to stay at 4.00%. Some predict a 25-basis-point cut due to ongoing inflation concerns. Meanwhile, the Bank of Japan (BoJ) released the minutes from its latest meeting, keeping rates at 0.50%. The minutes indicate that policymakers consider current rates low and support gradual increases based on economic performance. Japan faces growth risks for fiscal 2026, though underlying inflation is gradually moving toward the 2% target. The next BoE meeting will announce its interest rate decision, with expectations to maintain rates at 4%.

Economic Indicators and Central Bank Policies

Our main focus is the Bank of England’s decision tomorrow, November 6, 2025. While most expect rates to hold at 4.00%, the stronger UK PMI data suggests resilience in the economy. This reduces the likelihood of an unexpected rate cut, which could provide short-term support for the pound. We are closely monitoring UK inflation data, which remained steady at 2.9% as of October 2025, well above the BoE’s 2% target. Additionally, average weekly earnings are growing at 4.7%, which is keeping the BoE cautious. Given this backdrop, easing monetary policy soon seems difficult for policymakers. On the other hand, the Bank of Japan is shifting away from its very loose policy. Recent minutes suggest a gradual path towards rate hikes, which would strengthen the yen in the medium term. This difference in policies between a holding BoE and a tightening BoJ sets an interesting stage for the coming months. Data shows Japan’s core inflation has remained above 2% for over a year, a major change from the deflationary trends of the past decades. For example, in 2020, Japan’s core CPI was -0.9%, showing the significant shift in policy we are now witnessing. The BoJ is reacting to this change, albeit slowly. The current interest rate difference still favors the pound, so a sharp drop in GBP/JPY seems unlikely for now. However, the changing policies suggest a ceiling might be forming around the 201-202 level. We believe selling call options with strike prices above 203 could be a smart strategy to earn premiums while managing risk. It’s also important to consider the pair’s historical volatility, especially during shifts in central bank policies, like the sharp changes seen in late 2022. The current environment feels similar, making longer-dated put options a valuable hedge. These options would protect a portfolio against a rapid strengthening of the yen if the BoJ decides to speed up its tightening efforts. Create your live VT Markets account and start trading now.

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