The GBP/JPY currency pair has gained momentum, trading around 198.75 during the early European session on Monday. The Japanese Yen (JPY) is experiencing a decline amid political uncertainty following the ruling Liberal Democratic Party’s (LDP) loss of its parliamentary majority in Sunday’s national election.
This loss raises questions about the future makeup of the government and the Bank of Japan‘s (BoJ) plans for interest rate hikes, contributing to pressure on the Yen. The BoJ’s interest rate decision, set for Thursday, will be closely scrutinized. Although Governor Kazuo Ueda has ruled out a rate hike for this meeting, markets are anticipating a potential increase in December or January.
According to a Reuters poll, nearly 86% of economists expect the BoJ to maintain its current interest rates at the upcoming meeting. Izumi Devalier, chief Japan economist at Bank of America, emphasized that while political uncertainty may delay any rate hikes, the BoJ must also consider the ongoing weakness of the Yen.
In contrast, hawkish comments from Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann suggest a different trajectory for the Pound Sterling (GBP). Mann stated, “It would be premature to cut rates if you have structural persistence in the relationship between wages and price formation.” Such remarks could bolster the GBP in the near term, as markets assess the implications for monetary policy.
As these dynamics unfold, the GBP/JPY cross is positioned to react to developments in both the UK and Japan, particularly concerning interest rate expectations and political stability.
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