GBP/JPY is close to multi-year highs due to the Yen’s weak performance, even though many expect a rate hike from the Bank of Japan. The British Pound remains strong, despite recent UK GDP data showing a 0.1% decline for October. The GBP/JPY currency pair is around 208.64, a level not seen since August 2008. This could be the fifth week in a row that the pair has gained.

Market Decisions Ahead

Next week, both the Bank of England and the Bank of Japan will make important decisions. There is a 90% chance that the BoE will cut interest rates by 25 basis points, lowering the rate to 3.75%. Meanwhile, the Yen is responding slowly due to uncertainty about the BoJ’s future policy. Reports suggest that the BoJ may consider their upcoming meeting as the start of tightening, with possibilities of rates rising above 0.75%. A recent Reuters poll has shown that 90% of economists expect a rate increase to 0.75% at the December 19 meeting. Additionally, two-thirds think rates could reach at least 1.00% by next year. As of today, December 12, 2025, GBP/JPY is trading near its highest level since 2008, sitting strong at around 208.64. This strength persists despite a struggling UK economy. The focus in the upcoming weeks will be on the central bank meetings, as the market anticipates a significant policy clash between the BoE and the BoJ.

Different Monetary Policies

The BoE is expected to cut its interest rate by 25 basis points to 3.75% on December 18. This expectation is supported by recent data showing that UK inflation in November 2025 dropped to 2.1%, well within the target range. With the economy declining for two months, it’s a clear sign for the BoE to start easing its policy. In contrast, the BoJ is likely to raise its main policy rate to 0.75% on December 19, ending its long-held negative interest rate policy. Japan’s core inflation has been over 2.5% for more than a year, and earlier wage growth of 4% in 2025 gives the central bank confidence. This sets a solid foundation for the Yen to strengthen. The difference in policies suggests that the rising trend in GBP/JPY may face a sharp reversal. We are already noticing increased implied volatility for GBP/JPY options expiring after next week’s meetings, indicating traders expect significant price movement. Using derivatives like put options to hedge long positions or bet on a decline could be a strategic approach. Looking back to 2014, a similar situation occurred between the European Central Bank and the US Federal Reserve. When the ECB eased while the Fed hinted at tightening, it led to a significant decline in the EUR/USD pair over the following year. The current setup between the BoE and BoJ appears similar, suggesting that the current strength in GBP/JPY may not be stable. Create your live VT Markets account and start trading now.

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