GBP/JPY breaks its three-day streak of declines, trading at around 211.70 on Monday in Europe. The exchange rate is gaining ground as the pound sterling (GBP) strengthens following the release of stronger-than-expected monthly gross domestic product (GDP) data last week, which softened the Bank of England’s (BoE) forecast for interest rate cuts in February.
The United Kingdom (UK) economy grew by 0.3% month-on-month (MoM) in November, rebounding from a 0.1% contraction in October and beating expectations for growth of 0.1%. Markets are now awaiting key UK data due later this week, including employment and CPI inflation data, which could provide greater insight into the Bank of England’s policy outlook.
Upside in the GBP/JPY cross may be circumscribed as the Japanese yen (JPY) gains support amid possible intervention by Japanese authorities. Japanese Finance Minister Satsuki Katayama signaled the possibility of coordinated intervention with the United States to support the faint currency. On Friday, Katayama reiterated that all options are being considered, including direct market intervention.
Japan’s industrial production fell 2.7% month-on-month (m/m) in November 2025, slightly worse than initial estimates of 2.6%, reversing October’s 1.5% gain and marking the sharpest contraction since January 2024.
JPY also receives support from expectations of interest rate increases from the Bank of Japan (BoJ). Japan’s central bank is widely expected to keep its key interest rate at 0.75% this week, although markets are monitoring the possibility of a change in June. Last week, BoJ Governor Kazuo Ueda reiterated that the central bank remains ready to raise interest rates if economic and price developments follow his forecasts.
Frequently asked questions about central banks
Central banks have a key task of ensuring price stability in a country or region. Economies constantly struggle with inflation or deflation resulting from price fluctuations of certain goods and services. A constant augment in the prices of the same goods means inflation, a constant fall in the prices of the same goods means deflation. The task of the central bank is to maintain demand at an appropriate level by changing basic interest rates. For the largest central banks, such as the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE), the task is to keep inflation close to 2%.
The central bank has one critical tool at its disposal to raise or lower inflation, and that is to change its benchmark interest rate, commonly known as the interest rate. At the times indicated above, the central bank will issue a statement containing its key interest rate and provide additional justification for why it is maintaining or changing (lowering or raising) it. Local banks will adjust their savings and loan rates accordingly, which will in turn make it harder or easier for people to earn money on savings and for companies to take out loans and invest in their businesses. When a central bank increases interest rates significantly, it is called monetary tightening. Lowering the reference rate is called easing monetary policy.
The central bank is often politically independent. Members of the central bank’s policy board go through a series of panels and hearings before being appointed to a position on the policy board. Each member of this board often has some belief about how the central bank should control inflation and the resulting monetary policy. Members who want a very loose monetary policy, with low interest rates and budget-friendly credit, to significantly stimulate the economy, while being content with inflation just above 2%, are called “doves”. Members who rather want higher interest rates to reward savings and who want to keep inflation contained all the time are called “hawks” and will not stop until inflation reaches 2% or just below.
Typically, each meeting is chaired by a chairman or president who must reach a consensus between hawks and doves and has the final say when votes are split to avoid a 50-50 tie on whether current policy needs to be adjusted. The chairman gives speeches, which can often be followed live, during which the current state of monetary policy and prospects is conveyed. The central bank will try to push through its monetary policy without causing wild swings in interest rates, stocks or its currency. All central bank members will present their position to markets ahead of the policy meeting. In the days before a policy meeting, until a novel policy is announced, members are prohibited from speaking publicly. This is called the blackout period.
