Insights 
VT 
The British Pound (GBP) strengthens against the Japanese Yen (JPY), with GBP/JPY around 203.85 due to Yen’s weakening against major currencies. Japan’s newly appointed Prime Minister prepares a fiscal stimulus package, which markets perceive as discouraging for the Yen as it may delay near-term policy tightening by the Bank of Japan (BoJ).
Positive risk sentiment also contributes to the Yen’s frailty, given hopes of a US-China trade agreement, which boosts demand for riskier assets. The Bank of Japan’s monetary policy announcement is anticipated, with the central bank likely maintaining its 0.50% benchmark rate.
Market Speculations On Rate Hikes
Swaps markets indicate an 11% chance of a rate hike this week but nearly 50% by December, expecting a full quarter-point raise by the first quarter of 2026. Governor Kazuo Ueda’s guidance on potential rate rise considerations amid soft wage growth and fiscal support will be monitored.
With no major UK economic data this week, Sterling’s direction hinges on broader risk sentiment and upcoming fiscal developments. Ahead of the November 26 Budget, Chancellor Rachel Reeves faces pressure to address a £22 billion fiscal gap. Fiscal uncertainty might limit short-term Pound momentum, though monetary policy differences with Japan continue to support GBP/JPY.
We are seeing the Yen weaken because of a planned fiscal stimulus package reported to be near ¥20 trillion. This spending is a response to Japan’s recent soft economic data, including a preliminary Q3 GDP reading of -0.2%, making a Bank of Japan rate hike this Thursday highly unlikely. Consequently, derivatives that profit from a stable or falling Yen look attractive heading into the October 30th announcement.
UK Budget And Market Reactions
We are not expecting any surprises from Governor Ueda this week, especially with recent wage growth figures from earlier this month showing a meager 1.1% year-over-year increase, which falls short of inflation targets. Looking back, the BoJ’s historic move away from negative interest rates in 2024 showed they can act, but their deep-seated caution means they will likely wait for stronger data before hiking again. This suggests long-dated options that bet on continued JPY weakness into early 2026 could be a sound strategy, as markets are pricing in a full rate hike by then.
On the other side of the trade, we must watch for potential Pound weakness stemming from the upcoming UK budget on November 26. The need to close a £22 billion fiscal hole, recently highlighted by the Office for Budget Responsibility, has pushed 10-year UK government bond yields up to 4.3% amid investor uncertainty. This fiscal pressure could cap the Pound’s gains, making it wise to consider strategies like call spreads on GBP/JPY, which profit from a slow grind higher rather than an explosive rally.
Despite UK budget concerns, the fundamental driver for the GBP/JPY pair remains the wide interest rate gap. With the Bank of England’s rate at 4.75% versus the Bank of Japan’s 0.50%, the positive carry makes holding long GBP/JPY positions appealing. This suggests any dips caused by UK fiscal news in the coming weeks could be viewed as buying opportunities for traders focused on the underlying monetary policy divergence.
