The GBP/JPY currency pair pared its earlier gains during Asian trading hours on Wednesday, hovering around the 213.60 level as mounting political uncertainty in the United Kingdom weighed on the British Pound.
The British Pound came under pressure after a growing political crisis emerged in the UK.
More than 80 Labour MPs reportedly called for Prime Minister Keir Starmer to resign following disappointing local election results.
Market participants are increasingly concerned that a potential leadership contest could result in higher fiscal spending aimed at regaining voter support.
Despite Starmer’s assertion that there is no leadership contest underway, traders remained cautious over the political outlook.
The uncertainty reduced support for the Pound, limiting gains in the GBP/JPY pair.
Japanese Yen holds weaker levels despite strong current account data
The Japanese Yen remained subdued even after the release of stronger-than-expected current account figures from Japan.
Data showed that Japan’s current account surplus rose to JPY 4,681.5 billion in March, compared with JPY 3,625.3 billion recorded during the same month a year earlier.
The latest figure also exceeded market expectations of JPY 3,879 billion and marked the highest surplus on record.
Despite the strong economic data, the Yen failed to gain immediate momentum against major peers.
However, analysts noted that the Japanese currency could find support from expectations surrounding future monetary policy tightening by the Bank of Japan.
BOJ policymakers discuss further rate hikes
According to the Bank of Japan’s April Summary of Opinions, policymakers are considering the possibility of additional interest rate increases as early as the next policy meeting.
Concerns surrounding inflation, particularly linked to rising oil prices, were highlighted as a major reason behind the discussion.
The report indicated that policymakers remain attentive to inflation risks and broader economic conditions while assessing future monetary policy adjustments.
Meanwhile, the Organisation for Economic Co-operation and Development recommended that Japan rely more heavily on consumption tax increases to strengthen government revenues.
The OECD also projected that the Bank of Japan could raise short-term policy rates to 2% by the end of 2027.
However, it stressed that policymakers should maintain enough flexibility to adjust the pace and maturity of bond-buying operations if disruptions emerge in financial or bond markets.
In addition, the OECD called for stronger fiscal discipline from the Japanese government.
It advised authorities to limit the use of supplementary budgets to periods involving significant economic shocks.
The combination of political uncertainty in the UK and expectations surrounding Japan’s monetary policy kept GBP/JPY trading largely range-bound during the session.
Traders are expected to remain focused on political developments in Britain and further signals from Japanese policymakers regarding the future path of interest rates.
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