• The Pound Sterling weakens after the Bank of England keeps interest rates unchanged.
• The Japanese Yen strengthens sharply following intervention warnings from authorities.
• Policy divergence and risk aversion weigh on the cross.

GBP/JPY trades around 211.90 on Thursday at the time of writing, down 1.97% on the day, pressured by a combination of Pound Sterling (GBP) weakness and Japanese Yen (JPY) strength.

The Pound Sterling (GBP) declines after the Bank of England (BoE) decided to leave its key interest rate unchanged at 3.75%, in line with market expectations. This marks the third consecutive meeting with no change in monetary policy. The vote shows a strong majority in favor of holding rates, with only one Monetary Policy Committee (MPC) member, Huw Pill, supporting a rate hike to contain inflationary pressures. Governor Andrew Bailey justifies the pause by pointing to an uncertain economic environment, particularly due to geopolitical tensions and the impact of energy prices on inflation.

The BoE’s updated projections highlight a higher inflation path than previously expected in the coming years, with persistent risks linked to second-round effects on wages and prices. At the same time, growth forecasts are revised lower, reflecting a weakening UK economy and tighter financial conditions. This backdrop limits support for the British currency, as markets perceive a cautious central bank in the face of economic risks.

Meanwhile, the Japanese Yen (JPY) strengthens significantly following firm statements from Japanese authorities. Finance Minister Satsuki Katayama signals that the timing for intervention in the foreign exchange market is approaching, as USD/JPY moved above the key 160.00 threshold. These comments prompt investors to adjust positions, reducing short exposure to the JPY amid rising intervention risks.