GBP/JPY declines to near 191.50 amid hawkish outlook for BoJ’s policy

• GBP/JPY faces downward pressure amid growing hawkish expectations for the BoJ’s policy stance. 
• Japan’s 10-year government bond yield surpassed 1.5%, reaching its highest level in over 15 years. 
• The Pound Sterling may recover as Bank of England officials strike a cautious tone.

GBP/JPY holds losses after registering gains in the previous four successive days, trading around 191.60 during the early European hours on Thursday. The decline comes as the Japanese Yen (JPY) strengthens in response to a hawkish outlook from the Bank of Japan (BoJ) on its monetary policy.

Japan’s 10-year government bond yield surged past 1.5% on Thursday, marking its highest level in over 15 years. This rise was influenced by a broader rally in European bond yields, following Germany’s announcement of a €500 billion infrastructure fund and plans to reform borrowing rules. These measures are expected to bolster growth in Germany, driving investor sentiment.

Bank of Japan Deputy Governor Shinichi Uchida reaffirmed this week that the central bank would consider further interest rate hikes if economic conditions meet expectations. Uchida emphasized that Japan is at the initial stages of exiting its prolonged monetary easing policy, signaling a potential shift towards a more restrictive stance.

On Thursday, Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, addressed concerns over rising global protectionism, including tariff measures. Mimura stressed the need to find a balanced approach to mitigating the negative effects of globalization while preventing an outright slide into protectionist policies.

The GBP/JPY cross could regain its ground following cautious remarks from Bank of England (BoE) officials. BoE Governor Andrew Bailey, testifying before the Treasury Select Committee on Wednesday, stated, “We do expect a pick-up in inflation, but it will be nothing like a few years ago. I think it’s less likely we will get second-round inflation effects due to a weakening economy.”

Meanwhile, BoE policymaker Megan Greene, also speaking before the Treasury Committee, emphasized a cautious and gradual approach to easing monetary restrictions. Greene noted, “It’s likely inflation persistence will fade on its own accord,” while reiterating that monetary policy will likely need to remain restrictive.

BoE Chief Economist Huw Pill also addressed lawmakers in Parliament, stating, “We do need to remain vigilant to new shocks that might hurt the path back to 2% inflation. Evidence points against more rapid cuts in bank rates for me.”