The British Pound (GBP) experienced a rebound against the Japanese Yen (JPY) on Wednesday after a decline due to UK Chancellor Rachel Reeves’ pre-budget speech. GBP/JPY is trading around 200.60, recovering from an intraday low of 199.07.

UK economic momentum is aided by the latest Purchasing Managers Index (PMI) data. The Services PMI rose to 52.3 in October, surpassing the flash estimate and previous month, while the Composite PMI reached 52.2, the highest since May.

Upcoming Bank of England Decision

Upcoming focus is on the Bank of England (BoE) interest rate decision, with markets expecting rates to remain at 4.00%. A minority predict a 25-basis-point cut, given inflation pressures.

In Japan, the Bank of Japan (BoJ) released its recent meeting minutes, maintaining interest rates at 0.50%. The minutes reveal that policymakers view current rates as low and support potential gradual increases depending on economic conditions.

Japan faces downside growth risks for fiscal 2026, while underlying inflation is slowly moving toward the 2% goal. The next BoE meeting will announce its interest rate decision, with expectations for rates to hold steady at 4%.

Economic Indicators and Central Bank Policies

The immediate focus for us is the Bank of England’s decision tomorrow, November 6, 2025. While the market consensus is a hold at 4.00%, the stronger-than-expected UK PMI data suggests the economy is more resilient than previously thought. This reduces the probability of a surprise rate cut and could offer short-term support for the pound.

We are watching UK inflation data closely, which, as of the latest release for October 2025, remains sticky at 2.9%, still significantly above the BoE’s 2% target. Furthermore, average weekly earnings growth is running at a persistent 4.7%, fueling the BoE’s cautious stance. This economic backdrop makes it difficult for policymakers to justify easing monetary policy in the near future.

On the other side of the pair, the Bank of Japan is clearly signaling a move away from its ultra-loose policy. The recent minutes reinforce a path toward gradual rate hikes, which would strengthen the yen over the medium term. This policy divergence between a holding BoE and a hiking BoJ creates a compelling setup for the coming months.

Looking at the data, Japan’s core inflation has now been above 2% for over a year, a significant shift from the deflationary trends we saw for decades prior. For instance, back in 2020, Japan’s core CPI was -0.9%, highlighting the dramatic policy shift we are now witnessing. The BoJ is responding to this new reality, albeit slowly.

Given the interest rate differential still heavily favors the pound, any sharp drop in GBP/JPY is unlikely for now. However, the shifting stances suggest a ceiling may be forming around the 201-202 level. We believe selling call options with strike prices above 203 could be a prudent strategy to earn premium while defining risk.

We must also consider the pair’s historical volatility, especially during periods of changing central bank policy, like the sharp moves seen in late 2022. The current environment feels similar, suggesting that buying longer-dated put options could serve as a valuable hedge. This would protect a portfolio against a faster-than-expected strengthening of the yen should the BoJ decide to accelerate its tightening cycle.

Create your live VT Markets account and start trading now.