Japanese Yen outperforms as British Pound loses ground

210.30 is in focus as the British Pound tumbles towards that level against the Japanese Yen.
An unchanged interest rate decision is expected from the BoJ at its policy meeting later this month.
Expectations of a BoE interest rate hike strengthen following hot UK CPI figures.

0.5% is the British Pound’s (GBP) decline against the Japanese Yen (JPY). The pair trades around 210.30 in Thursday’s European session. Yen outperformance is weighing on the cross, despite expectations that the Bank of Japan (BoJ) will hold interest rates at 1.25% next week.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Japanese Yen: Today’s currency performance

Against the major currencies listed below, the Japanese Yen (JPY) recorded its largest gain versus the New Zealand Dollar today. The table details its percentage moves against each currency.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.03%	-0.11%	-0.75%	-0.22%	0.15%	0.18%	-0.54%
EUR	0.03%		-0.10%	-0.74%	-0.22%	0.18%	0.20%	-0.55%
GBP	0.11%	0.10%		-0.65%	-0.14%	0.25%	0.26%	-0.45%
JPY	0.75%	0.74%	0.65%		0.55%	0.93%	0.94%	0.22%
CAD	0.22%	0.22%	0.14%	-0.55%		0.38%	0.42%	-0.33%
AUD	-0.15%	-0.18%	-0.25%	-0.93%	-0.38%		0.03%	-0.70%
NZD	-0.18%	-0.20%	-0.26%	-0.94%	-0.42%	-0.03%		-0.70%
CHF	0.54%	0.55%	0.45%	-0.22%	0.33%	0.70%	0.70%

Percentage movements between the major currencies appear in this 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 tracing its row across to the US Dollar, for instance, gives the percentage change for JPY (base)/USD (quote) in the intersecting cell.

Every economist in the latest Bloomberg survey favoured the BoJ keeping interest rates on hold at its 30 October policy meeting. December expectations differ: 83% now anticipate an increase in the Japanese central bank’s 1.25% policy rate that month, compared with 35% in last month’s survey.

Expectations that monetary tightening remains the BoJ’s course were further supported by recent comments from Governor Kazuo Ueda.

Inflation near target: BoJ’s Ueda signals a modest hawkish tilt

Although FXS Speechtracker places this speech slightly below Governor Ueda’s historical average score, its references to “underlying inflation near 2%” and a “positive loop” between wages and prices indicate a mildly hawkish shift from earlier communication. Anchoring core inflation near 2% remains a priority. Combined with acknowledgement of resilient global demand, tight labour markets and demand-driven price pressures, this supports the view that the BoJ is moving closer to conditions warranting further normalisation.

Caution nevertheless limits the hawkish message. Ueda’s insistence that the fundamental approach to bond tapering has not changed, together with his refusal to announce emergency bond measures in advance, points to a data-dependent stance. For the YEN and JGBs, financial conditions are set to stay accommodative for now. However, an incorrectly calibrated policy rate could push long-term yields higher. Credible progress towards the 2% target is therefore being cited to support gradual, controlled rate increases and a more stable JGB market.

A warning against changing the existing monetary policy course also came from BoJ Deputy Governor Ryozo Himino on Wednesday.

AI inflation risks: Himino’s warning supports Yen outlook

An 8.2 FXS Speechtracker baseline score is matched by BoJ’s Himino, yet his focus on increasing medium- and long-term inflation expectations and upside price risks conveys a distinctly hawkish bias. Strong AI-related capital expenditure and exports feature alongside underlying inflation approaching the 2% target. His warning that delaying policy adjustments could harm the economy also strengthens the case for earlier normalisation, supporting a stronger Yen and higher Japanese yields.

Rapid growth in bank lending, low real interest rates and still-accommodative financial conditions add weight to the argument that policy may be excessively loose given elevated price risks. By stressing the need for appropriate monetary policy to deliver stable prices and sustainable growth, the BoJ signals greater willingness to tighten should inflation remain at or above target. That should encourage caution among Yen bears while supporting a gradual repricing of the BoJ’s policy trajectory.

In the United Kingdom (UK), Wednesday’s hot September Consumer Price Index (CPI) release has increased the likelihood of an interest rate rise at the Bank of England’s (BoE) November policy meeting.

November BoE hike expectations firm on UK inflation upside surprise

September’s UK inflation figures exceeded forecasts, Deutsche Bank analysts note, with CPI having "rose more than expected to +3.5% in September (vs. +3.4% expected)." The analysts describe the headline reading as "the highest level for headline CPI in nearly a year," adding that "the core CPI print also hit a 6-month high of +2.8%, although that was in line with expectations." In the bank’s assessment, the stronger inflation figures, combined with earlier robust labour market data, "helped to cement investor expectations for a BoE rate hike in November," as markets grow more confident of action at the next meeting.

Central banks: Frequently asked questions

Central banks: What is their role?

Maintaining price stability across a country or region is a central bank’s core mandate. Fluctuations in the prices of goods and services expose economies to inflation or deflation. Sustained increases in the prices of the same goods constitute inflation; sustained declines constitute deflation. By adjusting its policy rate, a central bank aims to keep demand in check. Major central banks, including the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE), are mandated to maintain inflation close to 2%.

Inflation above or below target: How do central banks respond?

Adjusting the benchmark policy rate, commonly called the interest rate, is a central bank’s principal tool for raising or lowering inflation. At scheduled times, it publishes a rate decision and explains why the rate is being held, cut or raised. Domestic banks then revise their deposit and lending rates. These changes affect how easily savers can earn returns and companies can borrow to invest in their operations. Substantial interest rate increases are known as monetary tightening, while cuts to the benchmark rate constitute monetary easing.

Monetary policy and interest rates: Who makes the decisions?

Political independence is common among central banks. Before taking a seat on a policy board, prospective members undergo a series of panel reviews and hearings. Board members typically hold individual views on inflation control and the appropriate monetary policy response. Those favouring very loose policy, low rates and inexpensive borrowing to give the economy a substantial boost, while accepting inflation slightly above 2%, are described as ‘doves’. Those preferring higher rates to reward savers and seeking to contain inflation at all times are called ‘hawks’. They remain committed to bringing inflation to, or just below, 2%.

Central bank leadership: Who chairs policy meetings?

A chairman or president usually presides over each meeting and works to build agreement between hawks and doves. If votes are evenly divided on a policy adjustment, the chair has the final say to prevent a 50-50 tie. Speeches by the chair, often broadcast live, communicate the current monetary stance and outlook. Central banks seek to advance policy without causing sharp fluctuations in interest rates, equities or their currencies. Ahead of a policy meeting, all members communicate their positions to markets. Public comments are then prohibited from a few days before the meeting until the new policy has been announced. This interval is known as the blackout period.