GBP Under Pressure Amid Hawkish BoJ Bets

The British Pound (GBP) is trading lower against the Japanese Yen (JPY) amid bets of a hawkish Bank of Japan (BoJ) policy meeting next week. The GBP/JPY cross has dropped by 0.3% to around 207.80 during the European trading session on Wednesday. Market participants are pricing in expectations of a BoJ interest rate hike of 50 basis points (bps).

A recent note from Rabobank states that market chatter around the prospect of a 50bps hike has intensified, citing BoJ board member Hajime Takata's comments last week. Takata stated that the central bank needs 'a different response' to conventional semi-annual rate hikes and should adopt a more nimble approach.

Analysts at HSBC point out that overnight index swaps imply around 75bps of cumulative hikes by April 2027, suggesting investors anticipate a change in how the BoJ responds to inflation and growth risks. The major highlight of the BoJ meeting is expected to be monetary policy guidance.

The British Pound (GBP) is expected to trade sideways amid a quiet United Kingdom (UK) economic calendar next week, when the Bank of England (BoE) will announce its interest rate decision.