British Pound little changed against Japanese Yen following dovish BoJ hold

• Following the BoJ’s policy decision, the British Pound shows little movement against the Japanese Yen.
• 1.25% remains the BoJ’s interest rate, following an 8-1 vote to hold.
• 4% is the interest rate investors expect the BoE to reach with a hike next week.

Around 210.80, the British Pound (GBP) is little changed against the Japanese Yen (JPY). The muted trading follows the Bank of Japan’s (BoJ) monetary policy announcement.

An 8-1 vote kept BoJ interest rates unchanged at 1.25%. Dissenting board member Hajime Takata favoured a 25 basis point (bps) increase to 1.50%.

At its September meeting, the BoJ raised policy rates by 25 bps.

Expectations had favoured unchanged policy rates after Governor Kazuo Ueda cautioned against rapid monetary tightening at the September policy meeting.

In a note, Brown Brothers Harriman (BBH) analysts described the BoJ as "widely expected to keep rates on hold at 1.25% and assess September’s 25bps hike before tightening again." Emphasising Governor Kazuo Ueda’s cautious stance, they recalled that "in September, BoJ Governor Kazuo Ueda warned that rapid rate hikes could unsettle asset prices, adding that it could take some time to confirm that 2% inflation is entrenched."

For further guidance on the monetary policy outlook, investors now turn to BoJ Governor Ueda’s press conference. Ahead of the policy decision, Commerzbank said that “markets currently price an around 80% probability of a rate hike in December”.

In the United Kingdom (UK), attention in financial markets is turning to next week’s Bank of England (BoE) monetary policy announcement.

BoE rate outlook

A BoE rate rise is effectively “nailed on in November,” according to strategists at Societe Generale. They cited a “brace of upside surprises for CPI and PPI output price inflation, and firmer wage data” as the main drivers. In their view, these factors will “alert the MPC to the budding risk of second round effects” and “will almost certainly trigger a hawkish response on interest rates” at the next policy meeting on 5 November.