The expectation of a UK-Japan interest rate differential and rising risk appetite have jointly pushed up the pound against the yen, and it is expected to continue to strengthen in the short term.
2025-12-12 14:24:30
After a slight pullback the previous day, GBP/JPY regained buying interest during Friday's Asian session, rising above 208.60 and continuing to hover near the high reached this week, the highest level since 2008.
Short-term market focus is on a series of important economic data to be released by the UK, including monthly GDP and industrial production, which are expected to bring new volatility to the pound.
The main driver of the currency's continued strength comes from the yen. Investors remain concerned about further fiscal pressure on Japan, while global risk appetite remains high, putting significant pressure on safe-haven assets, including the yen.
The overall positive sentiment in risk assets provided additional support for GBP/JPY. A forex analyst noted, "The yen is facing a double squeeze from structural fiscal pressures and improved global risk appetite."
However, the yen's decline has not completely spiraled out of control. The market widely expects the Bank of Japan to raise interest rates as early as next week, a stark contrast to expectations of a possible rate cut by the Bank of England next week, thus limiting the upward momentum of the pound-yen exchange rate.
In addition, the UK will see a flurry of data releases next week, including key indicators such as employment, inflation, and the PMI. As these indicators are closely linked to the Bank of England's interest rate decisions, the market is cautious about chasing higher GBP/JPY rates ahead of these releases.
Overall, the market is maintaining a high-level consolidation structure while awaiting major events. Although short-term buying strength exists, potential volatility risks should not be ignored.
The technical structure of GBP/JPY remains strong. The exchange rate is trading steadily above major moving averages, and the upward channel established over the past month remains intact. On the upside: a firm break above 209.20 could target the psychological level of 210.00, a key signal for the continuation of the bullish trend.
On the downside: Given the long-term overbought condition of the exchange rate, a break below the 207.40 support level could trigger a deeper correction, testing key support levels such as 206.20 and 205.50. The overall trend is biased towards high-level consolidation, awaiting data and central bank meetings to determine the direction.
Editor's Note:
From a macroeconomic perspective, the divergent monetary policy expectations between the UK and Japan remain the core engine driving the exchange rate to its current high level. However, with the Bank of Japan's interest rate hike expectations rapidly intensifying, the risk of bulls chasing higher prices in this area is increasing.
If UK data falls short of expectations, the GBP/JPY exchange rate is likely to experience a temporary pullback. We await a true trend breakout after the central bank meeting.
Short-term market focus is on a series of important economic data to be released by the UK, including monthly GDP and industrial production, which are expected to bring new volatility to the pound.
The main driver of the currency's continued strength comes from the yen. Investors remain concerned about further fiscal pressure on Japan, while global risk appetite remains high, putting significant pressure on safe-haven assets, including the yen.
The overall positive sentiment in risk assets provided additional support for GBP/JPY. A forex analyst noted, "The yen is facing a double squeeze from structural fiscal pressures and improved global risk appetite."
However, the yen's decline has not completely spiraled out of control. The market widely expects the Bank of Japan to raise interest rates as early as next week, a stark contrast to expectations of a possible rate cut by the Bank of England next week, thus limiting the upward momentum of the pound-yen exchange rate.
In addition, the UK will see a flurry of data releases next week, including key indicators such as employment, inflation, and the PMI. As these indicators are closely linked to the Bank of England's interest rate decisions, the market is cautious about chasing higher GBP/JPY rates ahead of these releases.
Overall, the market is maintaining a high-level consolidation structure while awaiting major events. Although short-term buying strength exists, potential volatility risks should not be ignored.
The technical structure of GBP/JPY remains strong. The exchange rate is trading steadily above major moving averages, and the upward channel established over the past month remains intact. On the upside: a firm break above 209.20 could target the psychological level of 210.00, a key signal for the continuation of the bullish trend.
On the downside: Given the long-term overbought condition of the exchange rate, a break below the 207.40 support level could trigger a deeper correction, testing key support levels such as 206.20 and 205.50. The overall trend is biased towards high-level consolidation, awaiting data and central bank meetings to determine the direction.
Editor's Note:
From a macroeconomic perspective, the divergent monetary policy expectations between the UK and Japan remain the core engine driving the exchange rate to its current high level. However, with the Bank of Japan's interest rate hike expectations rapidly intensifying, the risk of bulls chasing higher prices in this area is increasing.
If UK data falls short of expectations, the GBP/JPY exchange rate is likely to experience a temporary pullback. We await a true trend breakout after the central bank meeting.
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