GBP/JPY holds gains near 206.00 on generalised Yen weakness

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The Pound remains bid against an ailing Japanese Yen on Thursday.

The Pound stands tall at 205.75 after bouncing from 205.35 earlier on Thursday.
Easing concerns about BoJ intervention and news about stimulus measures in Japan have crushed the Yen.
In the UK, the moderate inflation figures added some weight to the GBP on Wednesday.

The Pound remains bid against an ailing Japanese Yen on Thursday. The pair’s reversal from the fresh 16-month high, right above 206.00, has found support above the previous year-to-date high, in the 205.35 area, before returning to 205.75 at the time of writing.

The Yen has sold off against its main rivals over the last few days, as investors' concerns about a potential intervention by the Japanese authorities eased, and news reporting that the Prime Minister Sanae Takaichi would be preparing a large stimulus package.

On Wednesday, the Japanese Finance Minister, Satsuki Katayama, affirmed that she did not discuss foreign exchange matters at a meeting with the Governour of the Japanese Central Bank, Kazuho Ueda, which has been taken by traders as a sign that the Japanese authorities are comfortable with the current Yen weakness.

Beyond that, recent news reports suggest that Prime Minister Takaichi would be assembling a Yen 21 trillion (USD 135 billion) stimulus package to help households cope with the higher inflation levels. This is likely to add pressure to the already strained public finances and is contributing to the JPY sell-off.

In the UK, data released on Wednesday showed that consumer prices moderated to 3.6% year-on-year in October, from the 3.8% peak in the previous three months. These figures feed hopes that the Bank of England might cut interest rates further in the coming months, and put some bearish pressure on the Pound.

(This story was corrected on November 20 at 12:30 GMT to say that the size of the Japanese stimulus package was JPY 21 trillion (USD 135 billion), instead of USD 20 billion, as previously reported).

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.