GBP/JPY traded higher on Monday, with the pair extending gains for a second consecutive day and reaching around 210.55, as the Japanese Yen (JPY) remained under pressure in thin trading conditions due to Japanese markets being closed for Silver Week holidays until Wednesday [1]. The Yen experienced broad-based weakness, falling sharply on Friday after the Bank of Japan (BoJ) raised its policy rate by 25 basis points to 1.25%. Despite the rate hike, traders interpreted the move as dovish because two BoJ policymakers voted against the increase and Governor Kazuo Ueda provided limited guidance on the timing of the next policy adjustment [1].
The Bank of England (BoE) kept its interest rates unchanged at 3.75% last week, which weighed on the British Pound (GBP). However, the persistent weakness in the Yen has overshadowed the pressure on Sterling, supporting the GBP/JPY cross [1]. The wide interest-rate gap between the UK and Japan, along with elevated oil prices amid conflict in the Middle East, continued to weigh on the Yen. The Yen's decline has also raised the risk of intervention, with reports indicating that the BoJ conducted a rate check during Friday's American trading hours, fueling speculation that officials could intervene in the foreign exchange market if the currency weakens rapidly [1].
Looking ahead, the economic calendar is relatively light, but preliminary Purchasing Managers' Index (PMI) data from the UK and Japan will be closely monitored for signs of economic activity. Additionally, traders are expected to pay attention to speeches from BoE officials for further clues about the interest-rate outlook [1].
CONCLUSION
GBP/JPY remains supported by ongoing Yen weakness, driven by central bank policy divergence and external factors such as oil prices and geopolitical tensions. Market participants are closely watching for potential intervention by Japanese authorities and upcoming economic data for further direction.