British Pound holds broadly steady against Japanese Yen following dovish BoJ hold

• The BoJ’s policy decision has prompted little movement in the British Pound against the Japanese Yen.
• An 8-1 majority at the BoJ votes to hold interest rates at 1.25%.
• A BoE interest rate rise to 4% next week is expected by investors.

Following the Bank of Japan’s (BoJ) monetary policy announcement, the British Pound (GBP) is trading broadly unchanged against the Japanese Yen (JPY), near 210.80.

Interest rates remain at 1.25% after the BoJ voted 8-1 to keep them unchanged. The dissenting board member, Hajime Takata, favoured a 25 basis point (bps) increase to 1.50%.

At its September meeting, the BoJ raised policy rates by 25 bps.

Expectations had been for the BoJ to hold policy rates steady, following Governor Kazuo Ueda’s warning against rapid monetary tightening at the September policy meeting.

In a note, Brown Brothers Harriman (BBH) analysts described the BoJ as "widely expected to keep rates on hold at 1.25% and assess September’s 25bps hike before tightening again." Pointing to Governor Kazuo Ueda’s cautious stance, they noted that "in September, BoJ Governor Kazuo Ueda warned that rapid rate hikes could unsettle asset prices, adding that it could take some time to confirm that 2% inflation is entrenched."

Attention now turns to BoJ Governor Ueda’s press conference, where investors will look for further guidance on the monetary policy outlook. Ahead of the decision, Commerzbank noted that “markets currently price an around 80% probability of a rate hike in December”.

In the United Kingdom (UK), next week’s Bank of England (BoE) monetary policy announcement is becoming the focus for financial markets.

BoE rate rise expectations take centre stage

A BoE rate rise is effectively “nailed on in November,” according to strategists at Societe Generale. They cited a “brace of upside surprises for CPI and PPI output price inflation, and firmer wage data” as the main factors behind that view. In their assessment, these developments will “alert the MPC to the budding risk of second round effects” and “will almost certainly trigger a hawkish response on interest rates” at the next policy meeting on 5 November.