Pound Sterling gains against Japanese Yen ahead of BoJ decision

• A weaker Japanese Yen keeps GBP/JPY modestly higher.
• A November BoE rate hike remains traders’ expectation as the UK Autumn Budget prompts little market reaction.
• Friday brings Tokyo inflation figures and the BoJ rate decision, with traders awaiting both releases.

GBP/JPY is up 0.15% on the day, trading near 210.64 at the time of writing. Thursday’s modest advance comes as the Japanese Yen (JPY) trails most major currencies. Investors are weighing the UK Autumn Budget ahead of Friday’s monetary policy announcement from the Bank of Japan (BoJ).

£100 in energy support for eligible households was among the measures in UK Chancellor John Healey’s first Budget, presented on Wednesday. The package adheres to the government’s fiscal rules and extends the fuel duty cut while raising taxes on banks, savers and landlords. Fiscal headroom for 2029-30 stands at £15 billion.

UK Budget: Neutral Outlook for Pound and Gilts Despite Stronger Fiscal Drag

The UK October 2026 Budget “is neutral for GBP and gilts,” according to strategists at Brown Brothers Harriman. Although “the government modestly increased fiscal tightening”, they note that it also “plans to issue slightly more debt.” Their analysis highlights that the “cyclically adjusted primary balance, which excludes interest costs and adjusts for the economic cycle, is projected to improve from a deficit of -0.3% of GDP in 2026/27 to a surplus of +0.5% in 2027/28.”

BBH says the change points to “a fiscal drag of 0.8% of GDP, up from 0.6% projected in March,” while cautioning that “the additional fiscal restraint is probably too modest to materially curb the nearly 125bps of BoE rate hikes implied over the next twelve months.”

A 25 bps increase is fully priced in by traders ahead of the BoE’s interest rate announcement on 5 November. Rates have remained unchanged this year, with policymakers finding limited evidence that higher energy costs were feeding through to wider prices and wages. The latest acceleration in inflation, combined with steady labour market and growth data, has nevertheless reinforced the case for a November increase.

After a cumulative 50 basis points (bps) of tightening earlier this year, the Bank of Japan (BoJ) is expected to leave rates on hold at Friday’s meeting. With traders anticipating a further increase in December, attention will centre on the BoJ’s revised growth and inflation projections and Governor Kazuo Ueda’s press conference.

Before the decision, Tokyo inflation figures for October and unemployment data for September will provide an updated view of price pressures and labour market conditions.