The British pound extended its rally against the Japanese yen on Thursday, rising for a fourth straight session as the pair held above key technical support near 212.00 and stayed on course to challenge the March peak around 213.30. The move came amid widening policy and economic divergence between the UK and Japan, and renewed pressure from surging oil prices on Japan’s energy‑dependent economy.
Pound holds firm as yen weakens
Sterling’s upside bias remained intact after downside attempts stalled around 212.30, well above initial support at 212.20. The pair briefly touched resistance at 213.15 on Wednesday, narrowly missing the March high at 213.31.
In daily trading, the pound was the strongest major currency against the yen, gaining 0.24%. It also edged 0.03% higher versus the U.S. dollar. The yen fell 0.19% against the pound and weakened against most major peers.
Oil shock intensifies pressure on Japan
The yen’s recent underperformance has been underscored by growing concern that higher oil prices could weigh heavily on Japan’s import‑reliant economy.
Brent crude futures settled above $115 per barrel for the first time since late 2024, driven by escalating geopolitical tensions in Iran that threaten global supply lines. Prices are now nearly 20% higher since the start of the year, directly impacting economies with large energy import needs such as Japan, which sources over 85% of its energy from abroad.
Rising import costs are feeding domestic inflation while simultaneously threatening growth, leaving Japanese policymakers facing a difficult trade‑off between supporting activity and containing price pressures.
Central bank divergence supports sterling
The currency move reflects a growing policy gap. The pound is being supported by expectations that the Bank of England (BoE) will maintain a hawkish stance, while the Bank of Japan (BoJ) remains constrained by fragile domestic conditions and external cost shocks.
In the UK, core inflation unexpectedly rose to 3.1% year‑over‑year this week, according to the Office for National Statistics, defying forecasts for a slight slowdown. The surprise uptick bolstered expectations that the BoE will keep policy tight.
BoE Governor Andrew Bailey said on Wednesday that policymakers must remain steadfast in bringing inflation back to the 2% target, a comment seen as reinforcing a firm policy line and underpinning sterling.
BoJ hesitation tempers yen support
In Japan, recent data showed stronger labour cash earnings, raising speculation that the BoJ could move toward a rate increase. Former BoJ board member Goushi Kataoka Adachi backed the likelihood of such a step on Tuesday, briefly lifting the yen off multi‑day lows.
However, those gains were short‑lived. BoJ Governor Kazuo Ueda has remained publicly quiet this week, a stance interpreted by markets as caution and a signal that the central bank may wait for more data before committing to tighter policy that could endanger a fragile recovery.
The result is a stark contrast: a central bank actively pushing back against persistent inflation in the UK versus a Japanese authority constrained by growth risks and an external cost shock.
Technical outlook remains bullish for GBP/JPY
Technical signals continue to support the pound’s advance against the yen.
- The Relative Strength Index (RSI) is holding in positive territory after easing from overbought levels, suggesting the uptrend is intact without yet flashing extreme conditions.
- The MACD histogram remains slightly above zero, indicating that underlying buying momentum has not faded.
On the price chart, immediate resistance sits at Wednesday’s high of 213.15, just below the March peak at 213.31. A clear break above that zone would put the February 9 high near 214.00 into focus as the next upside target.
Support is layered below current levels:
- first at 212.20
- then at 211.44
- with deeper support near 210.50
As long as spot prices hold above the 212.00–212.20 region, the near‑term bias is likely to stay skewed to the upside.
Directional bias favors dip‑buying
The combination of strong UK inflation pressures, a resolute BoE stance, Japan’s exposure to costly energy imports, and BoJ caution is creating a pronounced directional bias in the GBP/JPY pair.
This divergence has encouraged market participants to treat short‑term pullbacks as opportunities to re‑enter the prevailing uptrend, with buying interest emerging quickly on dips as the policy gap between London and Tokyo remains wide.
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