On Tuesday, June 17th, 2025, the BoJ did something extraordinary. To their credit, they chose not to make a rash decision and leave interest rates at 0.5%. This is the third straight gathering in which the central bank has decided against raising its benchmark interest rates. They are doing all of this in service of our nation’s economy while inflation expectations remain unpredictable. In terms of currency, with the news, the Japanese Yen rocketed to lead as the strongest currency against the British Pound. This move resulted in a historic change in the value of the GBP/JPY currency pair.
The Bank of Japan decided to hold its policy interest rate at -0.1% on September 21. As a result, the GBP/JPY pair fell to 196.15 after rising to a five-month high of 196.85 on the day. The BoJ is clearly wedded to explosive monetary policy. This pushes its return of underlying inflation to target between H2 FY2025-2027.
Bank of Japan’s Policy Decision
On June 17, the BoJ surprised the market by holding rates steady at 0.5%. This position has not wavered for quite a few meetings in a row now. This policy choice represents the bank’s dovish stance toward steering the economy from overheating while combating inflation from supply chain issues that have recently arisen. The Fed continues to project a gradual stabilization of inflation. It’s a big goal and it hopes to get there in just a few short years.
The BoJ’s decision to hold rates unchanged is consistent with its years-long efforts to drive a sustainable economic recovery in the face of global headwinds. First, it makes clear that the central bank does not plan to change interest rates anytime in the near future. This decision fosters a positive climate for businesses and consumers alike.
Additionally, the BoJ forecasts are watched carefully by economists for signs of where inflation might be headed. The central bank’s forecast suggests that core inflation will hit this target towards the end of the fiscal year. That’s a key advanced measure for adjusting future monetary policy.
The Impact on Currency Markets
Almost immediately after the BoJ’s announcement, the Japanese Yen appreciated against all major currencies, especially against the British Pound. The GBP/JPY cross retreated from a session high of 196.85 down to the mid-196.15s. Some analysts argue that this drop is a sign of the market responding to the BoJ’s apparent commitment to achieving inflation targets.
The British Pound was trading apprehensively heading into a series of critical economic releases. The Bank of England (BoE) will keep interest rates at 4.25%. This major decision is expected to be revealed at the full board meeting on Thursday. Back in May, BoE officials were peddling a line of “gradual and cautious” monetary easing. This overly restrictive signalling has undoubtedly played a role in whipping up current market fears around the Pound.
Closely-cued UK inflation figures on Wednesday. Investors have been watching for this news with great anticipation, as it will likely dictate future monetary policies. Economists expect a slight uptick in UK inflation, which would only add to the financial pressure facing the Pound.
The Road Ahead for Monetary Policies
The upcoming days are critical for both the Bank of Japan and the Bank of England as they navigate their respective monetary policies. The BoE voted to keep interest rates on hold at 4.25%. This decision is consistent with previous sessions, where policymakers have opted for caution in the face of economic uncertainty.
As both central banks address their monetary policies, market analysts will be keenly observing how these decisions will impact currency movements globally. The comparative stability in Japan contrasts with the cautious sentiment in the UK, where fluctuations in inflation data could prompt significant changes in monetary policy.