The GBP/JPY currency pair represents the value of the British pound sterling relative to the Japanese yen. The GBP/JPY is widely traded in the forex market and is considered a minor currency pair (currency pairs not associated with the US dollar but do include at least one of the other three major currencies).
The pair is considered one of the more volatile. Like other currency pairs, it is influenced by a variety of factors, including interest rate differentials, geopolitical developments in both nations and global risk sentiment. For example, the Japanese yen is seen as a safe haven, while the British pound is more volatile. During periods of uncertainty, investors will generally look to the JPY.
GBPJPY Forecast
According to Forex.com senior market analyst Fiona Cincotta, the UK economy is expected to continue to grow in 2025. However, she noted that “GDP could be weaker than the 1.5% forecast by the BoE owing to several key factors, including uncertainty surrounding trade and a less expansionary UK budget.” This would, of course, have a negative impact on the pound.
Meanwhile, David Scutt, a market analyst at City Index, highlighted the threat of BoJ intervention, saying it “warrants attention” in 2025. “It occurred multiple times last year at the Japanese government’s request,” he wrote. “Japanese policymakers frequently flag the risk of intervention, especially during periods of sharp yen weakness, but recent history suggests it’s not levels but the speed of moves that can prompt verbal threats to escalate into outright yen buying.”
Bullish GBP Argument: Overall, proponents of a stronger GBP/JPY point to the BoE’s ongoing battle with inflation, which led to the central bank maintaining interest rates at current levels in its latest decision. Additionally, they may look to the continued interest rate differentials.
Bullish JPY Argument: Conversely, a slowdown in the UK economy, especially following the UK budget implications, coupled with potential intervention by Japanese authorities to stabilise the yen, may limit further gains in the pair and see the yen gain. According to Trading Economics global macro models projections and analyst expectations, the GBPYJPY is expected to trade at 194.931 in one year’s time.
Our View: While short-term fluctuations are inevitable, the pair’s trajectory will depend heavily on monetary policy decisions and global risk trends. While the current trend points higher, investors should not discount the effect the UK budget may have on the GBP’s movements, as well as the sharp impact of any JPY intervention.
GBPJPY Performance
The price dynamics of GBP/JPY are driven by multiple macroeconomic factors, such as Bank of England (BoE) and Bank of Japan (BoJ) policies, inflation rates, and trade balances. Additionally, its correlation with risk-on and risk-off trends makes it a favourite among traders seeking to capitalise on market volatility.
With the Bank of England raising rates in 2021 and the Bank of Japan keeping rates steady until 2024, we saw a big move higher in the GBPJPY. In addition, other currencies, where rates were raised, also saw big moves against the yen.
The GBPJPY ended up ~10.6% through the year of 2024.
| Timeframe | Performance |
|---|---|
| 3 Months | +2.19% |
| 6 Months | -2.44% |
| Year-to-Date | +10.59% |
| 1 Year | +10.30% |
Other Minor Currency Pairs
Trading the GBP/JPY
It goes without saying that GBPJPY traders will be bullish one one currency and bearish on the other. Other factors that may see market participants monitor or trade the GBP/JPY include:
Risk Sentiment Gauge: GBP/JPY often serves as an indicator of broader market sentiment.
Carry Trade Opportunities: Due to the interest rate differential, GBP/JPY is a popular choice for carry trade strategies.
Macro Analysis: Economic analysts use GBP/JPY as a tool to understand the economic trajectories of the UK and Japan and their impact on broader markets.
However, GBP/JPY may not be as directly relevant for investors focused on domestic markets. Those primarily trading UK or Japanese equities may find other economic indicators more relevant to their strategies.
