The British Pound (GBP) strengthened against the Japanese Yen (JPY) on Tuesday, trading around 214.72 after recovering from a three-week low near 213.00 on Monday. This move was driven by a Reuters report indicating that the Bank of Japan (BoJ) is considering pausing its bond-tapering program, which weighed on the Yen. The report suggested the BoJ could maintain government bond purchases at the current pace of 2.1 trillion Yen ($13 billion) per month beyond the next fiscal year, effectively pausing the planned reduction in bond buying under its quantitative tightening program. Following this news, Japan's 10-year government bond yield fell 5 basis points to 2.66%, adding further pressure on the Yen [1].
Despite traders fully pricing in a 25 basis point rate hike at next week's BoJ monetary policy meeting, the Yen has struggled to gain support from these expectations. Elevated oil prices continue to weigh on Japan's import-dependent economy, and the surge in oil prices has increased upside inflation risks globally. This raises the likelihood that major central banks may need to raise interest rates, potentially widening the interest rate gap between Japan and other major economies, and leaving the Yen on the defensive as the BoJ continues to normalize monetary policy at a gradual pace [1].
The Japanese Yen was the weakest against the New Zealand Dollar among major currencies, with the GBP/JPY pair showing a 0.43% gain for the British Pound against the Yen on the day. The USD/JPY pair traded back above the 160.00 level, keeping the threat of another intervention by Japanese authorities in play and making traders cautious about building aggressive bearish positions against the Yen [1].
CONCLUSION
The British Pound's gains against the Yen were driven by reports of a potential pause in the BoJ's bond-tapering program and ongoing global inflation risks. Despite expectations for a BoJ rate hike, the Yen remains under pressure due to Japan's economic outlook and the possibility of further central bank tightening elsewhere. Market participants remain cautious given the risk of intervention by Japanese authorities.