Risk aversion keeps British Pound under pressure against Japanese Yen

An AI-led equity sell-off lifts demand for the Japanese Yen, weighing on GBP/JPY.
Yen gains remain limited as lower JGB yields deepen Japan’s yield disadvantage.
Persistent inflation risks keep both the BoE and BoJ hawkish on policy.

GBP/JPY edges lower on Friday. A worsening AI-led equity rout is drawing investors towards the safe-haven Japanese Yen (JPY) rather than the British Pound (GBP). The same risk aversion is lifting demand for Japanese government bonds, however, driving yields down and limiting the Yen’s advance.

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Around 212 is the level for GBP/JPY at the time of writing, following an intraday low of 211.36.

Japanese Yen: Today’s Currency Performance

The Japanese Yen (JPY) recorded its strongest performance against the New Zealand Dollar today. The table below sets out its percentage changes against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.63%	0.58%	0.49%	0.60%	0.97%	1.07%	0.42%
EUR	-0.63%		-0.05%	-0.14%	-0.03%	0.34%	0.44%	-0.22%
GBP	-0.58%	0.05%		-0.08%	0.02%	0.40%	0.49%	-0.17%
JPY	-0.49%	0.14%	0.08%		0.14%	0.51%	0.61%	-0.05%
CAD	-0.60%	0.03%	-0.02%	-0.14%		0.38%	0.47%	-0.19%
AUD	-0.97%	-0.34%	-0.40%	-0.51%	-0.38%		0.09%	-0.57%
NZD	-1.07%	-0.44%	-0.49%	-0.61%	-0.47%	-0.09%		-0.64%
CHF	-0.42%	0.22%	0.17%	0.05%	0.19%	0.57%	0.64%

Percentage movements between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. Selecting the Japanese Yen on the left and following that row across to the US Dollar, for instance, gives the percentage change for JPY (base)/USD (quote) in the corresponding cell.

Around 2.63% marks a four-month low for Japan’s benchmark 10-year government bond yield, which is down 4.70% on the day. Lower interest rates than those of major peers already leave the Yen at a yield disadvantage. Declining bond yields compound that pressure.

A 25-basis-point increase in September brought the Bank of Japan’s (BoJ) policy rate to 1.25%, followed by a pause in October. The central bank has been raising rates gradually, and policymakers still point towards additional tightening. Released on Thursday, the September meeting minutes showed agreement among members to continue increasing rates while gradually scaling back monetary easing.

Signs that inflation was exceeding expectations would require faster rate increases, one BoJ member said. Many members also cautioned that higher crude oil prices leave upside inflation risks elevated.

An 8–1 vote on Thursday saw the Bank of England (BoE) increase its benchmark interest rate by 25 basis points to 4.00%. Catherine Mann, an external MPC member, preferred a larger 50-basis-point rise to 4.25%.

Not since 2023 had the BoE raised rates. With this increase, it joins other major central banks tightening policy to curb inflation driven by higher energy costs associated with the war in the Middle East.

Elevated UK yields support Pound as BoE stays hawkish

MUFG analysts attribute the relative resilience of UK yields to investors’ response to the BoE’s policy signals. They note that “UK yields have held up better than in other major economies” amid the “hawkish message from the BoE signalling that at least one more hike is likely in the current tightening cycle.” The analysts also point to Governor Bailey, who “stated clearly that there was a strong case for another rate hike if the US-Iran conflict is not resolved,” bolstering expectations of further policy tightening. Their conclusion is that “overall, today’s hawkish BoE policy update should reinforce the GBP’s bullish momentum heading into year-end.”