• GBP/JPY slips to a fresh multi-week low as broad-based Yen strength keeps the cross under pressure for a third straight day.
• The Yen remains supported after Japan’s election and optimism around Prime Minister Sanae Takaichi’s policy agenda.
• BoE rate-cut expectations keep the Pound on the defensive.

The British Pound (GBP) remains on the back foot against the Japanese Yen (JPY) on Wednesday, with GBP/JPY sliding to its lowest level since December 19 amid broad-based strength in the Yen. At the time of writing, the cross is trading near 209.25, extending losses for a third straight day.

Renewed demand for the Yen is driven by improving investor sentiment following Japan’s election result, after Prime Minister Sanae Takaichi secured a decisive victory in the general election. However, some caution persists as Takaichi is expected to push through a ¥21 trillion stimulus package and has proposed a temporary suspension of the consumption tax on food.

Despite these concerns, investor optimism around Takaichi's policy agenda and the prospect of stronger economic growth continue to underpin sentiment toward Japanese assets, with Japan’s stock market surging to record highs.

Meanwhile, political tensions in the United Kingdom appear to be easing, though this has done little to offer meaningful support to the Pound. Prime Minister Keir Starmer survived a leadership crisis linked to controversy over the appointment of Peter Mandelson as UK ambassador to the United States, after securing backing from his Cabinet and a large number of MPs from the Labour Party.

Speaking on Tuesday, Starmer sought to downplay internal divisions, saying that “the real fight is not within the Labour Party, but with the right-wing party.” He added that he would “never walk away from the mandate I was given to change this nation.”

Investors also expect the Bank of England (BoE) to begin cutting interest rates as early as March, after the central bank held its Bank Rate at 3.75% at the February meeting in a narrowly split 5-4 vote.

According to a Reuters report last week, investors polled by the BoE expect the policy rate to be eased gradually to around 3.0% by the March 2027 meeting, reinforcing expectations of a steady easing cycle ahead.

Against this backdrop, GBP/JPY remains vulnerable in the near term as policy divergence favours the Yen, with the Bank of Japan (BoJ) seen staying on a gradual normalisation path.

Expectations for another rate hike have picked up after the central bank’s recent hawkish hold, and markets are now increasingly pricing the next BoJ rate increase for June.

Attention now shifts to the UK’s Gross Domestic Product (GDP), Industrial and Manufacturing Production data, scheduled for release on Thursday.