GBP/JPY fell nearly 0.85% to around 207.50 during Tuesday’s European session. The drop followed UK labour market data for the three months to December.
The ILO unemployment rate rose to 5.2%, its highest level in five years, versus expectations of 5.1%. Job growth came in at 52K, down from 82K previously.
Uk Labour Market Weakness Pressures Pound
Average Earnings Excluding Bonuses eased to 4.2% year-on-year from 4.4%, after the prior reading was revised to 4.4% from 4.5%. Average Earnings Including Bonuses slowed to 4.2% from 4.6% in the three months to November.
These figures strengthened expectations that the Bank of England could cut rates soon. UK CPI data for January is due on Wednesday.
Meanwhile, the Japanese yen traded broadly stronger after recovering Monday’s losses. Japan’s GDP grew 0.1% in Q4 2025, below forecasts of 0.4%, following a 0.7% decline in Q3 2025 (revised from -0.6%).
The sharp fall in GBP/JPY reflects a weakening UK labour market. With unemployment rising to a five-year high of 5.2% for the period ending December 2025, the data points to a cooling economy. This has shifted expectations for the Bank of England’s next policy move.
Derivative Strategy For Further Gbp Jpy Downside
Rate cuts now look more likely in the near term. The SONIA futures market is pricing an 85% chance of a 25-basis-point cut by the May meeting. This backdrop suggests the Pound could remain under pressure.
For derivatives traders, this supports bearish GBP positioning in the weeks ahead. One defined-risk approach is buying GBP/JPY put options with strikes below the 207.00 level. These can gain value if the pair continues to fall as rate-cut expectations build.
A similar pattern appeared in 2019. A run of weak labour reports was followed by a more dovish BoE stance, and the Pound weakened over the next quarter. The current setup shows clear similarities.
On the other side, the yen has stayed firm despite weaker GDP growth in late 2025. Part of this resilience appears tied to expectations that the Bank of Japan is slowly moving toward policy normalization. A soft Pound alongside a steadier yen supports a bearish GBP/JPY view.
Attention now turns to Wednesday’s UK CPI release for January. A softer inflation print would likely reinforce expectations for BoE cuts and could trigger another move lower in the Pound. That makes positioning for further GBP weakness especially relevant ahead of this key data.
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