Pound Sterling gains against Japanese Yen ahead of BoJ decision

• GBP/JPY retains a modest advance amid continued Japanese Yen weakness.
• The UK Autumn Budget prompts little market response as traders anticipate a November BoE rate increase.
• Friday’s Tokyo inflation release and BoJ interest rate decision remain in focus for traders.

With the UK Autumn Budget under review and Friday’s Bank of Japan (BoJ) policy announcement approaching, GBP/JPY trades around 210.64 at the time of writing, a daily gain of 0.15%. The cross retains modest gains on Thursday as the Japanese Yen (JPY) lags most other major currencies.

A £100 energy support payment for eligible households, an extended fuel duty cut and higher taxes on banks, savers and landlords were among the main measures in UK Chancellor John Healey’s first Budget, delivered on Wednesday. The package adhered to the government’s fiscal rules, with £15 billion of fiscal headroom also available for 2029-30.

Pound and gilt outlook seen as neutral after UK Budget increases fiscal drag

Despite a modest increase in fiscal tightening, Brown Brothers Harriman strategists assess that the UK October 2026 Budget “is neutral for GBP and gilts,” pointing out that although “the government modestly increased fiscal tightening” it also “plans to issue slightly more debt.” In particular, they note that the “cyclically adjusted primary balance, which excludes interest costs and adjusts for the economic cycle, is projected to improve from a deficit of -0.3% of GDP in 2026/27 to a surplus of +0.5% in 2027/28.”

BBH says the change amounts to “a fiscal drag of 0.8% of GDP, up from 0.6% projected in March,” while cautioning that “the additional fiscal restraint is probably too modest to materially curb the nearly 125bps of BoE rate hikes implied over the next twelve months.”

A 25 bps increase is fully priced in by traders ahead of the BoE’s interest rate announcement on November 5. Rates have remained on hold throughout this year, with policymakers finding little evidence that higher energy costs were feeding through to prices and wages more broadly. The latest inflation increase, however, together with steady labour market and growth data, has reinforced the argument for a November rise.

After tightening by a cumulative 50 basis points (bps) earlier this year, the Bank of Japan (BoJ) is expected to leave rates on hold at Friday’s meeting. With traders anticipating a further increase in December, attention will centre on the BoJ’s revised growth and inflation projections and Governor Kazuo Ueda’s press conference.

Before the policy announcement, October inflation data for Tokyo and September unemployment figures will provide a fresh reading on price pressures and labour market conditions.