Why is the British Pound still under pressure against the Yen as risk aversion offsets a hawkish BoE?

Selling pressure keeps GBP/JPY on the back foot for a second consecutive day as several adverse factors weigh.
Safe-haven demand supports the JPY as risk appetite weakens and expectations of a December BoJ rate hike strengthen.
USD strength puts pressure on the GBP, although the BoE’s hawkish stance could cushion the decline.

Selling pressure persists in GBP/JPY on Friday, leaving the cross nearly 0.35% lower on the day, just above the mid-211.00 level, during the first half of the European session. With sellers active for a second consecutive day, the cross is extending this week’s pullback from the 23.75 region, a two-month high. A combination of factors is keeping spot prices near their intraday lows.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

As investors turn away from risk, the Japanese Yen (JPY) is benefiting from its relative safe-haven appeal. By contrast, the British Pound (GBP) is under pressure from the continuing recovery in the US Dollar (USD) ahead of the crucial US Nonfarm Payrolls report. Adding to the JPY’s support is the Bank of Japan’s (BoJ) hawkish stance. Released on Thursday, the minutes of the September BoJ meeting showed agreement among policymakers that further policy rate increases and adjustments to the degree of monetary easing remained appropriate. This reinforced expectations of a December rate hike, lending support to the JPY.

For the GBP, some support could come from the Bank of England’s (BoE) hawkish turn. The central bank raised interest rates for the first time in more than three years and indicated that another increase is likely unless the US-Iran war is resolved. Immediate risks of a runaway fiscal crisis also receded following Chancellor John Healey’s 2026 Autumn Budget, which could provide a further cushion for the GBP. Together, these factors could support GBP/JPY, suggesting caution for traders taking aggressive bearish positions in anticipation of further declines.

BoE: Key Questions Answered

What is the Bank of England’s role, and why does it matter for the Pound?

Responsibility for the United Kingdom’s monetary policy rests with the Bank of England (BoE). The central bank’s main objective is ‘price stability’, meaning a stable inflation rate of 2%, which it pursues by adjusting base lending rates. By setting the rates at which it lends to commercial banks and at which banks lend to one another, the BoE determines the broader level of interest rates across the economy. These decisions also influence the value of the Pound Sterling (GBP).

Why do the Bank of England’s monetary policy decisions affect Sterling?

Above-target inflation prompts the Bank of England to increase interest rates, raising borrowing costs for households and businesses. Sterling benefits because higher rates make the UK a more appealing destination for international investors’ funds. Conversely, inflation below target signals slower economic growth. In that situation, the BoE will consider cutting rates to make credit cheaper, hoping that businesses will borrow to fund projects that generate growth. Such a move is negative for the Pound Sterling.

How does Quantitative Easing (QE) work, and what does it mean for the Pound?

When extreme conditions leave the financial system unable to channel credit effectively, the Bank of England may turn to Quantitative Easing (QE) to substantially expand credit flows. This is a last-resort measure used when interest rate cuts would not deliver the required outcome. Under QE, the BoE prints money to purchase assets from banks and other financial institutions, typically government bonds or AAA-rated corporate bonds. The Pound Sterling usually weakens as a result.

How does Quantitative tightening (QT) work, and why does it affect the Pound Sterling?

As the economy gains strength and inflation begins to rise, Quantitative tightening (QT) reverses QE. Under QE, the Bank of England (BoE) buys government and corporate bonds from financial institutions to encourage lending. QT instead involves halting additional bond purchases and no longer reinvesting the principal repaid as existing bond holdings mature. This policy is generally supportive of the Pound Sterling.