• GBP/JPY drifts lower for the second straight day amid a combination of negative factors.
• The risk-off impulse benefits the safe-haven JPY amid firming December BoJ rate hike bets.
• A firmer USD weighs on the GBP, though the BoE’s hawkish outlook could help limit losses.

The GBP/JPY cross attracts sellers for the second straight day on Friday, extending this week's retracement slide from the 23.75 region, or a two-month high. Spot prices stick to intraday losses through the first half of the European session and currently trade just above mid-211.00, down nearly 0.35% for the day amid a combination of actors.

The broader risk-off sentiment benefits the Japanese Yen's (JPY) relative safe-haven status, while the British Pound (GBP) faces headwinds from the ongoing US Dollar (USD) recovery ahead of the critical US Nonfarm Payrolls report. The JPY further draws support from the Bank of Japan's (BoJ) hawkish outlook. In fact, Minutes of the September BoJ meeting showed on Thursday that policymakers concurred it was appropriate to keep increasing the policy rate and modify the level of monetary easing, reaffirming bets for a rate hike in December and underpinning the JPY.

Meanwhile, the GBP could draw some support from the Bank of England's (BoE) hawkish shift, raising interest rates for the first time in more than three years and signaling that a further increase is likely unless the US-Iran war is resolved. Moreover, Chancellor John Healey's 2026 Autumn Budget reduced immediate risks of a runaway fiscal crisis, which could further help limit losses for the GBP. This, in turn, could lend some support to the GBP/JPY cross, warranting caution for aggressive bearish traders and positioning for any further depreciation move.

BoE FAQs

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.