GBP/JPY returns above 214.00 with BoE’s decision looming

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The Pound has retraced previous losses and is trading higher against an ailing Japanese Yen in Thursday’s early London session. Bulls have pushed the pair back above 214.00 at the time of writing, on track to a five-day rally and with the 16-year high, at 215.00 coming closer.

GBP/JPY returns beyond 214.00, drawing closer to the 16-year high, at 215.00.
The BoE decision, due later on Thursday, is likely to set the Pound's direction.
The Yen remains on its back foot ahead of Japan's snap elections.

Investors, however, are likely to remain cautious ahead of the Bank of England’s (BoE) monetary policy decision, due later on Thursday.

The bank is widely expected to leave its benchmark interest rate unchanged at 3.75% as inflation remains stubbornly high and economic growth shows signs of improvement. The voting split is expected to show two dissenters calling for a quarter-point rate cut; anything below that will be seen as hawkish and is likely to boost the Pound across the board.

The Yen, on the other hand, remains vulnerable with investors holding their breath ahead of next weekend's snap elections. Markets are wary that Prime Minister Takaichi might obtain a stronger parliamentary support to extend her expansive policies and boost an already high fiscal deficit.

A newspaper report released earlier this week revealed that the Liberal Democratic Party (LDP) might get as many as 300 of the 450 seats in the lower house, a landslide victory that would allow the Prime Minister to rule without a coalition, the most feared scenario for the market.

Earlier on Thursday, a 30-year Japanese Government Bond (JGB) auction closed with stronger demand than usual, which calmed markets and provided some support to the Yen. The yield of the 30-year note eased to 3.5% from all-time highs at 3.65%, and the 20-year yield eased to 3.13% from highs near 3.20% before the auction.

Economic Indicator

BoE Interest Rate Decision

The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.

Economic Indicator

BoE MPC Vote Rate Unchanged

Interest rates are set by the Bank of England’s (BoE) Monetary Policy Committee (MPC). The MPC sets an interest rate it judges will enable the BoE’s inflation target to be met. It is comprised of nine members – the Governor, the three Deputy Governors, the Bank's Chief Economist and four external members appointed directly by the Chancellor. Investors look at each member’s vote in order to seek cues over how unanimous was the decision on interest rates.