GBP/JPY rises to near 196.50 as BoJ remains uncertain about economic impact of US tariffs

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GBP/JPY recovers its recent losses registered in the previous session, trading around 196.50 during the European hours on Monday.

GBP/JPY appreciates as the Japanese Yen struggles amid the BoJ’s uncertainty over the US tariff impact.
Japan’s political uncertainty further complicates the BoJ's policy normalization path.
The Bank of England is widely expected to implement a 25 basis point rate cut on Thursday.

GBP/JPY recovers its recent losses registered in the previous session, trading around 196.50 during the European hours on Monday. The currency cross gains ground as the Japanese Yen (JPY) depreciates, as the Bank of Japan (BoJ) remains uncertain over the economic impact of higher United States (US) tariffs.

Moreover, the Japanese Yen (JPY) remains under pressure due to domestic political uncertainty, which could further hinder the Bank of Japan’s (BoJ) efforts to normalize monetary policy. The ruling Liberal Democratic Party’s loss in July raises the likelihood of further delays to BoJ rate hikes.

Meanwhile, Japanese Economy Minister and chief trade negotiator Ryosei Akazawa said on Monday that the recently announced US-Japan trade agreement is not a legally binding commitment. Akazawa highlighted that $550 billion investment in the US could ultimately lead to benefit Japan. He hopes to implement the US cars deal as early as possible.

Japanese Prime Minister Shigeru Ishiba stated that the government is ready to compile an additional budget to cushion the economic impact of US tariffs, acknowledging growing political pressure following his coalition’s recent loss in the upper house elections.

The Pound Sterling (GBP) may face challenges as the Bank of England (BoE) is widely anticipated to deliver a 25 basis point rate cut during its monetary policy decision on Thursday. Moreover, concerns rise over the United Kingdom’s (UK) economic outlook and fiscal health. Investors remain increasingly pessimistic about Britain’s growth prospects, fueling expectations of the BoE’s interest rate cut in August.

Tariffs FAQs

What are tariffs?

Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.

What is the difference between taxes and tariffs?

Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.

Are tariffs good or bad?

There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.

What is US President Donald Trump’s tariff plan?

During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.