Risk aversion keeps British Pound under pressure against Yen despite hawkish BoE

A second consecutive day of declines leaves GBP/JPY under pressure from several negative factors.
Stronger expectations of a December BoJ rate rise and risk aversion support the safe-haven JPY.
USD strength pressures GBP, but the BoE’s hawkish stance may cushion the decline.

GBP/JPY is down nearly 0.35% on the day. Trading just above the mid-211.00 area, the cross retains its intraday losses through the first half of Friday’s European session. Selling for a second consecutive day extends this week’s pullback from the 23.75 region, a two-month high, as several factors weigh on the pair.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Ahead of the key US Nonfarm Payrolls report, the continuing recovery in the US Dollar (USD) puts pressure on the British Pound (GBP). At the same time, broader risk aversion favours the Japanese Yen (JPY), given its relative safe-haven appeal. A hawkish Bank of Japan (BoJ) outlook provides additional support for the JPY. Released on Thursday, minutes from the September BoJ meeting showed agreement among policymakers that further policy rate increases and adjustments to the degree of monetary easing remained appropriate. That reinforced expectations of a December rate rise and supported the JPY.

The Bank of England’s (BoE) hawkish shift could, however, offer GBP some support. The central bank raised interest rates for the first time in more than three years and indicated that another increase is likely unless the US-Iran war is resolved. Immediate risks of a runaway fiscal crisis also eased following Chancellor John Healey’s 2026 Autumn Budget, potentially helping to contain GBP losses. Together, these factors could support GBP/JPY, suggesting caution for traders taking aggressive bearish positions or positioning for further depreciation.

BoE: Key Questions Answered

The Bank of England: Its Role and Impact on the Pound

A steady inflation rate of 2% is the Bank of England’s (BoE) primary objective, described as ‘price stability’. The BoE determines monetary policy for the United Kingdom and uses changes in base lending rates to pursue this goal. By setting the rate at which it lends to commercial banks and at which banks lend to one another, it determines interest rates across the wider economy. The value of the Pound Sterling (GBP) is also affected.

BoE Monetary Policy and Its Effect on Sterling

Higher interest rates make the UK more appealing to international investors seeking a place for their funds, supporting the Pound Sterling. The Bank of England raises rates when inflation exceeds its target, increasing borrowing costs for households and businesses. Conversely, below-target inflation signals slowing economic growth. The BoE will then consider cutting rates to make credit cheaper, hoping that businesses will borrow to fund projects that generate growth. This is negative for the Pound Sterling.

Quantitative Easing (QE): How It Works and Affects the Pound

When interest rate cuts cannot deliver the required outcome, the Bank of England can turn to Quantitative Easing (QE) as a last resort in extreme circumstances. This policy substantially expands the flow of credit through a stalled financial system. To carry it out, the BoE prints money to purchase assets from banks and other financial institutions, typically government bonds or AAA-rated corporate bonds. The Pound Sterling usually weakens as a result of QE.

Quantitative Tightening (QT): Implications for the Pound Sterling

A strengthening economy and rising inflation provide the setting for quantitative tightening (QT), the opposite of QE. Under QE, the Bank of England (BoE) buys government and corporate bonds from financial institutions to encourage lending. Under QT, it ends further bond purchases and no longer reinvests principal received as its existing bond holdings mature. The policy is generally supportive of the Pound Sterling.