Sterling-Yen eyes return to the 200 club

GBP/JPY nears 200, a first since 2008

By Ahmed Azzam | @3zzamous | 26 February 2024

Market open
  • GBP/JPY's journey: On a trajectory towards the 200 mark, unseen since 2008, driven by contrasting central bank policies.

  • BOE's stance: Delays in interest rate cuts, with the UK's core CPI stubbornly above 5%, temper expectations for early reductions.

  • BOJ's approach: Maintains negative rates, with forecasts suggesting core inflation dipping below 2% - a first since March 2022.

For the first time since 2008, the GBP/JPY exchange rate may reach the 200 mark, fueled by the contrasting monetary outlooks of the Bank of England and the Bank of Japan. As the BOE signals a delay in interest rate cuts amid persistent high inflation in the UK, the BOJ appears steadfast in maintaining its negative interest rate policy, setting the stage for a significant currency play.

In the UK, core CPI remains stubbornly above the 5% mark, leading traders to recalibrate their expectations for a premature rate cut. This week, anticipation builds as Japan's core inflation is projected to fall below 2% for the first time since March 2022, introducing a new dynamic to the GBP/JPY trajectory.

BOE Governor Andrew Bailey's recent remarks suggest that the central bank could consider reducing rates even before inflation hits its 2% target. This approach diverges from that of other G-10 countries, which are cautious about adjusting policy ahead of the Federal Reserve, further explaining the yen's recent depreciation.

Meanwhile, Japan's stock market reflects a bullish sentiment, with the Nikkei 225 Index climbing 0.5% to over 39,200, reaching new all-time highs in the wake of Nvidia's robust earnings report and despite hawkish signals from Fed officials against early rate cuts.

As global markets await Japan's inflation data with bated breath, the contrasting stances of the BOE and BOJ highlight GBP/JPY as a compelling momentum play.

Investors also brushed aside hawkish statements from Federal Reserve officials who continued to push back on expectations of early interest rate cuts.