GBP/JPY Rises as Yen Weakens Further
The Bank of England (BoE) and Bank of Japan (BoJ) made opposite decisions on monetary policy this week, but the market reacted in a similar way to both announcements.
On Thursday, the BoE held interest rates at 3.75% with a 6-3 vote. This was expected, so the decision itself carried no surprise. The labour market remains loose, with unemployment at 4.9%, and demand for labor described as weak. Despite this, sterling weakened.
The next day, the BoJ raised its policy rate to 1.25%, the highest since 1995, in a 7-2 vote. This was also widely expected, but two dissents against the hike signalled a committee less unified than the headline implied. The market read this as a limit on how far tightening will go.
The yen weakened more after the BoJ decision, with USD/JPY rising past 157 and the Nikkei gaining. Falling yields after a rate rise is a signal that the market now expects a slower path ahead, not a faster one.