The GBP/JPY pair snapped a three-day losing streak, trading around the 211.70 level during European trading hours on Monday. The currency exchange rate rises as the pound strengthens after stronger-than-expected monthly GDP data released last week eased the Bank of England’s bets on a February interest rate cut.
The UK economy expanded 0.3% month-on-month in November, rebounding from a 0.1% contraction in October and beating expectations for a 0.1% rise. Markets now look ahead to key UK data later this week, including employment figures and CPI inflation, which could provide further insight into the Bank of England’s policy outlook.
The upside in GBP/JPY may be restricted as the Japanese Yen gains support amid possible intervention by Japanese authorities. Japanese Finance Minister Satsuki Katayama indicated the possibility of coordinated intervention with the United States to support the weak currency. On Friday, Katayama reiterated that all options remain on the table, including direct market intervention.
Japanese industrial production fell 2.7% month-on-month in November 2025, slightly worse than the initial estimate of 2.6%, reversing October’s 1.5% gain and representing the largest decline since January 2024.
The Japanese yen is also receiving support from expectations of a rate hike from the Bank of Japan. The Bank of Japan is widely expected to keep interest rates at 0.75% this week, although markets are monitoring the possibility of a move in June. Last week, Bank of Japan Governor Kazuo Ueda reiterated that the central bank remains ready to raise interest rates if economic developments and prices develop in line with his expectations.
Frequently asked questions for central banks
Central banks have the main task of ensuring that prices in a country or region are stable. Economies constantly experience inflation or deflation when the prices of certain goods and services fluctuate. A continuous rise in prices for the same goods means inflation, and a continuous fall in prices for the same goods means deflation. It is the responsibility of the central bank to maintain demand by adjusting the interest rate. For the largest central banks such as the US Federal Reserve (Fed), the European Central Bank (ECB), or the Bank of England (BoE), the mandate is to keep inflation near 2%.
The central bank has one important tool at its disposal to raise or lower inflation, and that is by adjusting its benchmark interest rate, known as the interest rate. At the moments announced in advance, the central bank will issue a statement on its interest rate and provide additional reasons as to why it will remain or change (lower or raise). Local banks will adjust their savings and lending rates accordingly, which will make it harder or easier for people to earn their savings or for companies to get loans and make investments in their businesses. When a central bank raises interest rates significantly, this is called monetary tightening. When the benchmark interest rate is lowered, it is called monetary easing.
The central bank is often politically independent. Members of the central bank’s policy board go through a series of committees and hearings before being appointed to a policy board seat. Each member of this board often has a certain conviction about how the central bank should control inflation and subsequent monetary policy. Members who want very loose monetary policy, with low interest rates and cheap lending, to boost the economy significantly while being content to see inflation just above 2%, are called “doves.” Members who want to see higher interest rates to reward savings and want to keep inflation down at all times are called “hawks” and will not rest until inflation reaches 2% or just below.
Typically, there is a chair or chair who presides over each meeting, needs to create consensus among the hawks or doves, and has the final say when it comes to dividing the votes to avoid a 50-50 tie on whether the current policy should be amended. The Chairman will often make live follow-up speeches, communicating the current cash position and outlook. The central bank will try to push its monetary policy forward without causing violent fluctuations in interest rates, stocks, or its currency. All central bank members will direct their stance towards the markets before the policy meeting. A few days before the policy meeting and until the new policy is announced, members are prohibited from speaking publicly. This is called a blackout period.
