The GBP/JPY has dipped a bit as the Yen gains support from Bank of Japan (BoJ) Governor Ueda’s hawkish remarks. Current swaps indicate that nearly 50 basis points of BoJ rate hikes are expected this year. Market attention is now on the upcoming UK Services PMI and Japan’s employment and confidence data. The British Pound has seen a small drop against the Japanese Yen, trading around 210.80 and staying within a two-week range. BoJ Governor Ueda confirmed the bank’s willingness to raise interest rates, expecting sustainable growth with moderate wage and price increases. The decision to raise the policy rate target to 0.75% in December—reaching a three-decade high—highlights this plan.

Japan And UK PMI Data

Japan’s manufacturing PMI improved slightly from 49.7 in November to 50 in December. In the UK, the Bank of England remains cautious, maintaining a gradual easing bias since December but not providing clear direction on future rate changes. Analysts will keep an eye on upcoming PMI data from both countries. In the currency market, the Japanese Yen showed the strongest performance today against the Canadian Dollar. The included heat map shows the percentage changes of major currencies against each other, giving a snapshot of current Forex movements. The major factor right now is the clear divide between the Bank of Japan and the Bank of England. The BoJ is signaling more rate hikes this year, while the BoE seems more inclined towards easing. This policy gap suggests that the recent strength of the Japanese Yen may persist, putting downward pressure on the GBP/JPY pair. Recent data supports this outlook. In 2025, Japan’s spring ‘shunto’ wage negotiations led to pay hikes of over 5%, and December’s Tokyo core inflation held steady at 2.8%. These economic pressures make further BoJ tightening necessary to combat inflation.

UK Economic Slowdown

Meanwhile, the UK economy is showing signs of slowing down, which justifies the Bank of England’s cautious approach. The UK saw a slight contraction of 0.1% in the last quarter of 2025, and headline inflation fell to 2.3% in November, nearing the BoE’s 2% target. This makes it challenging for the central bank to maintain high rates for much longer, which should limit the Pound’s rise. For derivative traders, this situation presents an opportunity to position for a decline in GBP/JPY. Buying put options on GBP/JPY with strike prices below the current 210.00 level offers a way to profit from a potential downturn. For those anticipating a more gradual decline, selling out-of-the-money call spreads could be a smart strategy to earn premium while the pair remains capped. It’s also important to note that this pair has surged significantly, rising from below 190 throughout most of 2025 to its current multi-decade highs. Such long trends often respond to shifts in central bank policies, like what we are seeing now. The current pause around 210.80 might mark a crucial moment before a larger correction occurs. Create your live VT Markets account and start trading now.

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