British Pound jumps to two-week top as JPY declines after BoJ's rate-hike to 31-year high

The British Pound (GBP) rose to a nearly two-week high against the Japanese Yen (JPY) on Friday, following the Bank of Japan's (BoJ) decision to raise its short-term interest rate by 25 basis points to 1.25%. This marked a 31-year high for the Japanese currency. The BoJ's announcement reinforced its commitment to further rate hikes in response to economic and financial developments, though the split 7-2 vote on the policy statement suggested a divided board, dampening expectations for an aggressive tightening cycle.

Japan's headline Consumer Price Index (CPI) remained steady at 1.9% year-over-year, while core inflation unexpectedly dropped to 1.7% in August, falling below the central bank's 2% target. This situation weakened the JPY. Meanwhile, the UK's subdued USD price action and the Bank of England's (BoE) decision to maintain interest rates provided a boost to the GBP/JPY cross.

The BoE's dovish stance could limit the GBP's gains. Analysts suggest waiting for strong follow-through buying before positioning for a further recovery of the GBP/JPY pair from the current low of 207.00.