GBP/JPY soars to near 198.80 as BoJ holds rates steady, BoE policy eyed

• GBP/JPY surges to near 198.80 as BoJ didn’t provide a timeframe for interest rate hikes after keeping them steady at 0.25%.
• The BoJ is worried about potential risks from incoming US protectionism policies under the leadership of Donald Trump.
• Investors await the BoE policy in which the central bank is expected to leave interest rates unchanged at 4.75%.

The GBP/JPY pair rallies to near 198.80 in Thursday’s European session. The cross strengthens after the Bank of Japan’s (BoJ) monetary policy announcement in which the central bank left interest rates unchanged at 0.25%, as expected. Eight members of the Monetary Policy Committee (MPC) supported keeping interest rates steady, while policymaker Naoki Tamura, a known policy hawk, proposed raising them by 25 basis points (bps) to 0.5%.

BoJ Governor Kazuo Ueda acknowledged that incoming policies from United States (US) President-elect Donald Trump when he will take office could pose a risk to Japan’s economic outlook. Ueda kept doors open for interest rate hikes in 2025 as he said, "If the economy and prices move in line with our forecast, we will continue to raise our policy rate”. He refrained from committing a timeframe for policy adjustment.

Investors brace for more volatility in the Japanese Yen (JPY) as the National Consumer Price Index (CPI) data for November is lined up for release on Friday. The inflation report is expected to show that the National CPI, excluding Fresh food, accelerated to 2.6% from 2.3% in October.

Meanwhile, the Pound Sterling (GBP) performs strongly against a majority of peers ahead of the Bank of England’s (BoE) interest rate decision at 12:00 GMT. The BoE is widely expected to opt for leaving interest rates steady at 4.75%. Therefore, investors will focus more on BoE’s guidance on interest rates for 2025.

Out of the nine-member Monetary Policy Committee (MPC), only policymaker Swati Dhingra is expected to propose easing interest rates by 25 bps.