GBP/JPY faced fresh selling on Thursday, giving back part of Wednesday’s rebound from 209.70–209.65, near a nearly four-week low. It later recovered a few pips from the day’s low but stayed below 211.00 in early European trade, down over 0.20% on the day.
Sterling weakness against the Yen was linked to worries about energy price shocks tied to the Iran war. The Bank of England’s signal of a possible rate rise as early as April also raised concerns about downside risks to the UK economy.
Risk Sentiment And Geopolitical Drivers
Risk-off conditions supported the Yen’s safe-haven demand and weighed on the cross. Middle East de-escalation hopes eased after remarks from US President Donald Trump.
Trump said Iran would be hit extremely hard over the next two to three weeks if no deal is reached. Separate reports said the UAE wants to join the war to open the Strait of Hormuz, adding to fears of a wider conflict.
These developments drove a sharp intraday rise in crude oil prices and increased inflation concerns. There were also worries that higher energy costs could slow Japan’s growth and lift inflation, which could limit Yen gains and lend some support to GBP/JPY, while intervention fears could limit any upside.
Given the conflicting pressures on GBP/JPY, we are seeing a spike in implied volatility. The Cboe Volatility Index (VIX) has pushed above 28, a level of market fear we haven’t seen sustained since the European banking scare in mid-2025. This suggests that simply holding a spot position is risky, and traders should look to options to define their risk.
Options Strategies In Elevated Volatility
The threat of an April Bank of England rate hike into a slowing economy is a major headwind for the Pound. Last week’s UK March CPI data, which came in hotter than expected at 4.1%, almost guarantees this move and raises the risk of a policy error. Consequently, buying GBP/JPY put options with a strike price below the 209.50 level could be a prudent way to hedge or speculate on further downside over the next month.
However, the war-driven surge in energy prices, with Brent crude now trading firmly above $115 a barrel, complicates the picture for Japan. We saw a similar dynamic in 2022 after the invasion of Ukraine, where a spike in energy costs eventually weighed on the Yen despite its safe-haven status. This suggests a sharp reversal upwards in GBP/JPY is not out of the question if oil prices continue to climb and fears of Japanese stagflation grow.
This two-sided risk makes strategies that profit from volatility itself, rather than direction, particularly attractive. We believe implementing a long strangle, which involves buying an out-of-the-money put and an out-of-the-money call option, is a sensible approach. This position will become profitable if the cross makes a significant move in either direction, which seems highly likely given the geopolitical and central bank tensions.
We must also remain vigilant about potential intervention from Japanese authorities to support the yen, which could cap any significant rally in the cross. Officials have already issued verbal warnings as USD/JPY approaches the 160.00 level, a line they aggressively defended in late 2024. This reinforces the idea that upside for GBP/JPY may be more limited than its potential downside, making bearish positions slightly more favourable.
