After dipping to the mid-216.00s during Asian trading on Monday, the GBP/JPY pair has bounced back slightly, stopping a small retreat from last week’s peak, which was the highest since January 2008. Still, the current price is below the 217.00 threshold, making bulls a tad nervous.
The Japanese yen is attracting new sellers, mainly due to Japan’s heavy dependence on oil imports from the Middle East. With ongoing energy supply disruptions in the Strait of Hormuz, economic worries continue to mount. Additionally, the noticeable interest rate gap between Japan and other major economies, like the UK, keeps the JPY carry trade alive, giving a boost to the GBP/JPY cross.
In recent events, the United States has launched a significant offensive against Iran, prompting Iran to retaliate with missile strikes on U.S. military bases in the Gulf. Traders are also beginning to factor in geopolitical risks as Iran’s Islamic Revolutionary Guards Corps (IRGC) attacked another commercial vessel in the Strait of Hormuz and announced a blockade of a critical waterway.
On another note, the Bank of Japan (BoJ) raised its policy rate to 1% back in June, marking the highest level since 1995. Meanwhile, the Bank of England (BoE) maintains a base rate of 3.75%, creating a substantial interest rate disparity of around 275 basis points. The easing of political uncertainties in the UK and the hawkish outlook from the BoE have helped the GBP perform well against the yen, supporting the GBP/JPY cross.
Interestingly, former Greater Manchester mayor Andy Burnham has garnered the majority support from Labor MPs in his bid to succeed Keir Starmer as the next British prime minister. Traders are also leaning towards the view that the BoE will likely increase interest rates by at least 25 basis points before the year wraps up. Nevertheless, potential intervention risks and a hawkish stance from the BoJ could cushion losses for the yen and restrict the GBP/JPY cross.
Market participants are staying vigilant, given speculation that Japanese officials might intervene again to stabilize the currency. Additionally, there are reports suggesting that the Bank of Japan may revise its economic growth forecast for fiscal 2026 and remain focused on inflation overshoot risks in its upcoming policy meeting. This could lend further support to the yen and temper the pound/yen cross.
