GBP/JPY under pressure as Japan prepares for higher interest rates

The British pound-Japanese yen pair has come under pressure as expectations for another Bank of Japan rate hike strengthen demand for the yen. The Japanese currency has climbed to its strongest level against the US dollar in around six months, while the pound faces a less certain interest-rate outlook due to divided opinions among Bank of England policymakers.

Japan's latest economic data have added weight to expectations of higher rates, with revised figures showing the economy expanded at an annualised 1.4% in the second quarter, up from an initial estimate of 1.1%. This has contributed to the increased likelihood of a 0.25 percentage point rate hike by the BoJ at its September meeting, currently priced at around 80%.

The yen is also benefiting from expectations that Japanese authorities remain prepared to respond to disorderly currency moves. Japan and the US intervened to support the yen earlier this year, and recent comments from officials have kept the possibility of further action in focus. Combined with expectations of higher Japanese interest rates, this has helped unwind some of the pressure that kept the yen weak for much of the year.