• GBP/JPY eases after reaching its highest level since December 2007.
• Expectations of greater UK fiscal discipline and potential BoE rate hikes support the Pound.
• Japanese authorities keep intervention threats alive as the Yen stays under pressure.

GBP/JPY trades with a mild negative bias on Thursday, taking a breather after climbing to its highest level since December 2007 the previous day, as the British Pound benefited from easing political uncertainty and expectations of greater fiscal discipline.

At the time of writing, the cross trades around 219.00, down 0.25% on the day.

The Pound strengthened across the board on Wednesday following reports that current Home Secretary Shabana Mahmood could replace Rachel Reeves as Chancellor. Mahmood is seen as a more market-friendly choice than the other candidates.

Meanwhile, renewed tensions in the Middle East are pushing Oil prices higher again, raising inflation risks and reviving expectations of interest rate hikes from the Bank of England (BoE), providing additional support to Sterling.

However, BoE Deputy Governor Sarah Breeden said on Thursday that the Iran war shock is less likely to become embedded and lead to “inflationary dynamics that we might need to lean against.” She added that the BoE is ‘in a good place’ to monitor what’s happening.

Even if the BoE holds rates steady, the interest-rate differential with Japan is still wide, posing a persistent headwind for the Japanese Yen (JPY).

Against this backdrop, GBP/JPY retains an upside bias. However, broad-based Yen weakness, with USD/JPY hovering near 40-year highs, keeps traders alert to possible intervention by Japanese authorities.

Japan’s Finance Minister Satsuki Katayama reiterated on Thursday that authorities are ready to take appropriate action in the currency market at any time if needed. She added that interest and exchange rates are driven by multiple factors but declined to comment on specific currency levels.