GBP/JPY remains strong near its highest levels in decades as the Yen faces pressure. The Bank of Japan (BoJ) is set to decide on interest rates soon, and they are likely to keep rates steady after raising them to 0.75% in December. This follows concerns about Japan’s finances, especially with a snap election and tax cuts on the horizon. The British Pound is gaining against the Yen, which is struggling due to worries about Japan’s fiscal situation. Currently, GBP/JPY is trading around 213.00, a level we haven’t seen since July 2008. Prime Minister Sanae Takaichi plans to dissolve parliament and call for a snap election on February 8.

Concerns About Japanese Fiscal Policy

The upcoming election aims to support new stimulus measures and a temporary two-year halt to the 8% food consumption tax. This raises concerns about Japan’s public debt. A more relaxed fiscal policy may complicate the BoJ’s path to raising rates due to increased government borrowing. Furthermore, the Yen’s weakness could lead to higher inflation. Despite these concerns, the BoJ is expected to keep rates unchanged, avoiding signals that could upset the Yen and bond markets further. We should also watch Japan’s National Consumer Price Index (CPI) and the UK’s inflation data. Last month, the UK’s Headline CPI rose by 0.4%, with more economic updates on the way. As GBP/JPY approaches levels not seen since 2008, we should prepare for more volatility. The differences in fundamentals are clear: Japan’s fiscal challenges are impacting the Yen, while UK inflation stays stubbornly high. This situation is favorable for strategies that benefit from significant price movements. The planned snap election and tax cuts in Japan are raising serious concerns about its fiscal stability. Japan’s debt-to-GDP ratio surpassed 260% in 2025, the highest among major economies. This new spending poses a direct risk to the Yen’s value. If the BoJ adopts a dovish stance in their upcoming meeting, we could see a faster decline in the Yen.

Effects of UK Inflation

On the British side, UK inflation increased to 3.4% last month, leading to a delay in expectations for aggressive rate cuts by the Bank of England. This difference in policy is the main reason behind the Pound’s strength against the Yen. For now, it seems that the easiest route for GBP/JPY is upward. Considering the forthcoming Bank of Japan decision and the Japanese election on February 8, buying GBP/JPY call options could be a smart move. This strategy allows us to take advantage of potential price rises while limiting our risk if sentiment changes unexpectedly. We should also keep an eye on tonight’s Japanese CPI data, as any surprises could create a temporary dip, offering a better entry point for long positions. Create your live VT Markets account and start trading now.

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