GBP/JPY hits fresh YTD highs above 199.85 amid generalised Yen weakness

• The Pound appreciates on Yen weakness and hits fresh year-to-date highs above 199.85.
• Risk appetite, political uncertainty, and the threat of higher tariffs are hammering the Yen.
• Softer Japanese inflation data puts further BoJ tightening into question.

The Pound is keeps marching higher for the second consecutive day as the Japanese Yen struggles, hammered by a mix of lack of progress in the trade talks with the US, rising political uncertainty, and easing inflationary trends, which muddle the BoJ’s monetary policy outlook.

The broad-based Yen weakness and the positive risk sentiment seen on Friday us contributing to extend the British Pound’s rally, which has reached levels right above the June 9 high, at 199.83, although it has not confirmed above it yet.

The Japanese yen is coming under pressure with investors increasingly wary about the outcome of this weekend’s House of Councillors Elections. The latest polls suggest that Prime Minister Ishiba’s ruling coalition is likely to lose its majority in parliament, which will lead to political uncertainty.

Apart from that, the trade negotiations with the US are showing a lack of progress, fueling investors’ anxiety about the possibility of facing 25% tariffs from August 1. Such levies are a significant threat to a strongly trade-dependent economy, like that of Japan, and an additional weight on the JPY.

Finally, recent Consumer Price Index data revealed that core inflation eased to 3.3% from the 29-month high at 3.7% amid lower rice prices. The headline inflation moderated to a 3.3% year-on-year reading from May’s 3.5%, which puts further BoJ tightening into question.