The British Pound has weakened against the Japanese Yen after comments from Bank of Japan Governor Kazuo Ueda. Currently, GBP/JPY is trading at around 205.25, close to a five-day low. Governor Ueda suggested that a rate hike in December is still on the table, which has raised market expectations. This has increased the likelihood of a rate hike on December 18-19 to 80%, up from 60% just a week ago.

Market Reaction to BoJ Governor’s Comments

After Ueda’s remarks, Japan’s 10-year government bond yield jumped above 1.85%, reaching its highest level since July 2006. In the UK, the Manufacturing PMI rose to 50.2 in November, marking the first time in over a year that it surpassed the 50 mark. Despite this rise in PMI, the Pound received limited support, highlighting ongoing uncertainty in business. Traders are now focused on upcoming comments from a Bank of England policymaker and the Financial Stability Report. The Bank of Japan has traditionally embraced very loose monetary policies to boost the economy. However, recent moves to adjust this strategy have strengthened the Yen, reversing the trends seen in earlier years. This change is partly due to rising inflation and wage expectations in Japan. The Bank of Japan is clearly shifting its policy, with Ueda’s comments indicating a likely rate hike at the December 18-19 meeting. As a result, we should brace for continued Yen strength against the Pound. This marks a significant change in the trading environment for JPY pairs, which have seen a weak Yen for years.

Strategic Positioning for GBP/JPY

With the increased likelihood of a sharp move, we are exploring options to bet on a lower GBP/JPY. Buying put options on the pair provides a defined-risk strategy to benefit from further Yen appreciation ahead of the BoJ meeting. The one-month implied volatility for GBP/JPY has climbed above 14%, a level not seen since the policy adjustment in the spring of 2025, signaling market anticipation. The broader market is already responding to this potential shift away from the extremely loose policies of the past decade. Recent data from last Friday shows that speculative net short positions on the Yen have decreased significantly, marking the largest weekly drop since the third quarter of 2025. This coincides with reports indicating that major Japanese companies are considering average wage increases of over 4.5% for 2026, an important factor for the BoJ. While the UK’s manufacturing PMI rising above 50 is a positive sign domestically, it is being overshadowed by the strong monetary policy message from the BoJ. Sterling’s fundamentals are taking a backseat as the interest rate gap between the UK and Japan is set to narrow. Therefore, we see any strength in the Pound as a chance to sell in the GBP/JPY pair for now. This marks a notable shift from 2022-2024, when the wide policy differences between the BoJ and other central banks made betting against the Yen a popular trade. We will need to stay alert for any further guidance from either the BoJ or the Bank of England as we approach their mid-December meetings. The key focus remains on the BoJ’s decision on December 18-19, which will primarily drive this currency pair. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now