GBP/JPY slips to near 187.50 as BoJ signals further rate hike

• GBP/JPY appreciates as BoJ officials point to potential further policy tightening.
• JP Morgan Asset Management suggests the BoJ may only consider raising rates further if the Fed cuts rates.
• Sterling could fall due to increased refugee flows amid heightened tensions in the Middle East.

GBP/JPY is recovering its recent gains of the past two sessions, trading around 187.40 during the Asian session on Friday. Traders are closely monitoring Japan’s monetary policy outlook as central bank officials have signaled they are prepared to raise interest rates further. However, they took a more cautious stance due to increased market volatility.

On Friday, Bloomberg reported that JP Morgan Asset Management (JPAM) believes the Bank of Japan is unlikely to raise interest rates in the near term. According to JPAM, the BoJ could consider further rate hikes only if the Federal Reserve cuts interest rates and the US economy stabilises. They anticipate that any further tightening by the BoJ is more likely to occur in 2025, provided the global economic environment remains stable.

The GBP/JPY cross could experience downward pressure due to increased refuge flows amid heightened geopolitical tensions in the Middle East. The recent escalation followed the killing of senior members of the militant groups Hamas and Hezbollah, which raised concerns about potential retaliatory actions by Iran against Israel.

On Thursday, Israeli forces intensified their airstrikes on the Gaza Strip, leaving at least 40 dead, according to Palestinian medics. This escalation has further intensified the conflict between Israel and the Hamas-led militants, as Israel prepares for the possibility of a wider regional conflict.

The British pound (GBP) faced challenges following last week’s decision by the Bank of England (BoE) to cut interest rates from a 16-year high. The rate was cut by a quarter of a point to 5% after a close vote among policymakers, who were divided on whether inflationary pressures had eased enough. BoE Governor Andrew Bailey has indicated that the Monetary Policy Committee will proceed with caution going forward.