• On Thursday the GBP/JPY traded in the 180.71 - 182.51 range.
• BoE hiked rates by 50 bps and the MPC stated that they will do “what’s necessary” to bring down inflation to 2%.
• Gilts rose after the decision, giving further traction to the GBP.

In Thursday's session, the GBP gained ground against the JPY on the back of a hawkish Bank of England decision to raise rates by 50 basis points (bps) vs the 25 bps expected. As a result, rising British yields are tractioning the Sterling. However, investors are seeing a spooky outlook in the UK as the Fortune 500 (FTSE) saw sharp losses.  In addition, hawkish remarks by Powell in its testimony before the US Senate, which hinted at more rate hikes this year, further weakened the Yen. All eyes are now on inflation data from Japan.

Markets asses BoE’s decision

The Bank of England (BoE) raised interest rates from 4.5% to 5% with seven members of the Monetary Policy Committee (MPC) agreeing to a rate hike while two of them voted to hold the rates steady. In the statement, the Bank acknowledged that significant upside news in recent data points is set to contribute to inflationary pressures and that they will do “what is necessary to return inflation to 2% in the medium term”.

As a reaction, the British Bond market is experiencing increases in yields across different maturities. The 10-year Bond yield has climbed to 4.43%, while the 2-year yield is at 5.14%, and the 5-year yield is at 4.63%. Moreover, BoE’s hawkish stance significantly weakened the British Financial Times Stock Exchange 100 Index (FTSE) which fell to its lowest level since the beginning of June, following the decision, indicating a negative market sentiment in the UK, as more rate hikes tend to be associated with less economic activity. 

On the other hand, market participants will keep an eye on Japanese inflation data from May in the early Friday Asian session. The headline Consumer Price Index is expected to accelerate to 4.1% YoY in May and the core measure to 4.4% YoY. In that sense, a hot inflation reading may force the Bank of Japan (BoJ) to reconsider its ultra-dovish stance and consider rate hikes.