GBP/JPY Surged Following BoJ’s Ueda Speech

GBP/JPY climbed to 192.10 as the Bank of Japan (BoJ) kept the interest rate the same and softened the growth rate forecast for the Japanese Yen (JPY). At May’s policy meeting, BoJ board members unanimously agreed to keep the short-term policy rate unchanged in the range of 0.0% to 0.5%, considering the impact of trade policies and the global economic slowdown. BoJ Governor Kazuo Ueda said during the press conference that Japan’s economy is recovering moderately; however, some weakness remains. Ueda further stated that economic and price projections depend on how countries respond to US tariffs, and the central bank is expected to continue raising rates if the economy and prices align with projections. On the data front, industrial production in March fell by 1.1% from the previous month, reversing the 2.3% increase seen in February and missing the expected 0.4% decline. This represents the second decrease of 2025 and highlights growing concerns regarding the potential impact of US tariffs. Meanwhile, Japan’s retail sales increased by 3.1% year-over-year in March, slightly below the expected 3.5% rise, yet still marking the 36th consecutive month of growth.

Sterling weakened as cautious market sentiment arose from worries about the global trade war’s impact on the UK’s economic outlook. Furthermore, increasing confidence that the Bank of England (BoE) will lower rates at May’s policy meeting is also expected to inject volatility into the pound. Recent comments from Megan Greene, a BoE policymaker, suggested that the trade war could create a “net disinflationary” effect on the UK economy, warning that the job market may face disturbances due to a rise in employers’ contributions to social security schemes from 15% to 13.8%, effective this month. BoE officials, including Governor Andrew Bailey, warned that the central bank must consider the risks of a global trade war stemming from Trump’s tariffs. “We do have to take very seriously the risk to growth,” Bailey remarked last week. While BoE Deputy Governor Clare Lombardelli expressed her concerns over trade policy uncertainty, emphasising the importance of being “prudent” by considering “persistent risks” in monetary policy decision-making. The S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) for April 2025 was finalised at 45.4, an upward revision from the initial estimate of 44.0 and slightly above the March figure of 44.9.

In today’s session, broader market sentiment surrounding the central bank policy decisions, including the Bank of Japan (BoJ) and the Bank of England (BoE), will influence the GBP/JPY exchange rate.

EUR/GBP Stumbles on Upbeat Growth Data

EUR/GBP hovered near 0.8499 as the euro gained ground following stronger-than-expected Eurozone GDP figures. The Eurozone economy expanded by 0.4% in the three months leading up to March 2025, following a 0.2% growth in the fourth quarter of 2024, which matches the market forecast, as indicated by the preliminary estimate released by Eurostat on Wednesday. The bloc’s Gross Domestic Product (GDP) accelerated at an annual rate of 1.2% in Q1, compared to 1.2% in the previous quarter and a 1% estimate. However, weaker-than-expected preliminary April Harmonised Index of Consumer Prices (HICP) data from Germany and France could dampen the market sentiment around the shared currency. The German Consumer Price Index (CPI) dropped to 2.1% per year in April from 2.2% in March, according to Destatis’ flash estimate released on Wednesday. Monthly, the CPI increased by 0.4%, exceeding the market expectation of 0.3%. The Harmonised Index of Consumer Prices in Germany, the European Central Bank’s preferred gauge of inflation, rose 2.2% year-on-year after an increase of 2.3% in March. This reading exceeded analysts’ estimates of 2.1%. The French Consumer Price Index (CPI) increased by 0.5% month-over-month in April, up from 0.2% in March, slightly surpassing the expected 0.4%. Annually, inflation remained stable at 0.8%, matching expectations. Meanwhile, Italy’s Consumer Price Index (CPI) rose by 0.2% month-on-month in April 2025, following a 0.3% increase in March. Yearly inflation edged up to 2.0% from the previous month’s 1.9%.

Mixed inflation numbers have reflected moderate price pressures across the Eurozone’s largest economies, fuelling market speculation that the European Central Bank (ECB) will opt for further policy easing. Currently, investors are pricing in a 25 bps interest rate reduction for June’s policy meeting, following the dovish remarks by ECB policymakers and optimism surrounding recent US-imposed tariffs on trading partners.

Sterling lost ground against the euro following cautious market sentiment stemming from concerns that the global trade war will slow down the United Kingdom’s (UK) economic outlook. Additionally, rising market confidence that the Bank of England (BoE) will reduce rates in May’s policy meeting will influence the pound. Recent remarks from Megan Greene, a policymaker with the Bank of England, hinted that the potential trade war could lead to a “net disinflationary” effect on the UK economy, warning that the job market could experience shockwaves as employers’ contributions to social security schemes have risen from 15% to 13.8%, effective this month.

In the absence of any market-moving economic data from the Eurozone, the British Manufacturing Purchasing Managers’ Index (PMI) data for April will drive the EUR/GBP exchange rate today.

AUD/JPY Buoyed as BoJ Keeps Rate Steady Amid Tariff Uncertainty

AUD/JPY edged higher near 92.16, as the Bank of Japan’s (BoJ) decision to maintain the interest rate amid the uncertainty surrounding US tariffs weighed on the Japanese Yen (JPY). In its policy statement, the BoJ confirmed that the central bank would raise the policy rate if economic and price trends align with its forecasts. During the press conference following the meeting, BoJ Governor Kazuo Ueda mentioned that economic and price projections might shift considerably based on how other countries react to US tariffs. He noted that while the economy remains roughly on course, the outlook is less certain than before, and any major changes in tariff policy would impact monetary policy. On the data front, the final au Jibun Bank Japan Manufacturing PMI for April 2025 printed at 48.7, exceeding the flash estimate of 48.5 and March’s 12-month low of 48.4. Nonetheless, this continues to indicate a tenth consecutive month of decreasing factory activity, offering little significant motivation ahead of the important central bank event risk.

On the Aussie front, upbeat Australian March Trade Balance data supported the currency. As per data released by the Australian Bureau of Statistics on Thursday, Australia’s trade surplus increased to 6,900M MoM in March, surpassing the anticipated 3,130M and the previous 2,852M. Additional details indicated a rise in Australian exports by 7.6% MoM in March, recovering from a decline of -4.2% seen the month prior. In contrast, imports decreased by 2.2% MoM in March after experiencing a 1.8% increase in February. On Wednesday, Australia’s Consumer Price Index (CPI) rose by 0.9% quarter-on-quarter (QoQ) in the first quarter (Q1) of 2025, up from a 0.2% climb in the fourth quarter. Market expectations were for a growth of 0.8% during this period. Year-over-year, Australia’s CPI inflation held steady at 2.4% in Q1, unchanged from the previous year and exceeding the market consensus of 2.2%. The RBA Trimmed Mean CPI saw an increase of 0.7% quarterly and 2.9% annually. Forecasts suggested a 0.7% increase QoQ and 2.9% year-on-year (YoY) for the quarter ending in March. The monthly Consumer Price Index maintained a steady rate of 2.4% YoY in March, equal to the prior figure of a 2.4% increase.

Stronger-than-expected first-quarter inflation data, coupled with market anticipation of monetary easing by the Reserve Bank of Australia (RBA), continues to influence investor sentiment regarding the risk-sensitive Aussie. Recent remarks from Australian Treasurer Jim Chalmers supported current market sentiment, citing, “The market expects more interest rate cuts after inflation figures, nothing in these numbers that would substantially alter market expectations.” Globally, weaker Manufacturing Purchasing Managers’ Index (PMI) data, along with President Trump’s remarks on US-China deals, may undermine the Australian dollar, with China being a close trade partner of the country.

In today’s session, market sentiment around the Bank of Japan (BoJ) interest rate decision and any shift in global risk appetite will drive the AUD/JPY exchange rate.

EUR/JPY Climbed on Dovish BoJ Stance

EUR/JPY edged higher to 163.29 after the Bank of Japan’s (BoJ) widely expected decision to maintain its policy rate. During May’s policy meeting, the BoJ board unanimously decided to maintain the short-term policy rate at 0.0% to 0.5%, considering the effects of trade policies and the global economic slowdown. In the press conference, BoJ Governor Kazuo Ueda mentioned that while Japan’s economy is showing moderate recovery, some weaknesses are still evident. He also noted that economic and price forecasts hinge on how other countries react to US tariffs, indicating that the central bank may continue to raise rates as long as the economy and prices meet the anticipated projections.

On the other hand, the euro gained ground following stronger-than-expected Eurozone GDP figures, which fuelled market speculation that the European Central Bank (ECB) would opt for further policy easing. The Eurozone economy grew by 0.4% in the three months to March 2025, following 0.2% growth in Q4 2024, matching market forecasts, as shown in Eurostat’s preliminary estimate. GDP accelerated at an annual rate of 1.2% in Q1, consistent with the previous quarter. Weak April Harmonised Index of Consumer Prices (HICP) data from Germany and France may dampen market sentiment on the shared currency. The German CPI fell to 2.1% in April from 2.2% in March, with a monthly rise of 0.4%, above the 0.3% expectation. The HICP in Germany, the ECB’s preferred inflation measure, rose by 2.2% annually, exceeding the 2.1% estimate. The French CPI rose by 0.5% month-over-month in April, slightly exceeding expectations of 0.4%, and annual inflation remained stable at 0.8%. Italy’s CPI increased by 0.2% month-on-month in April, with yearly inflation up to 2.0% from 1.9%. In March, Germany’s retail sales rose by 2.2% year-over-year, decelerating from a 4.3% increase in February. The unemployment rate remained at 6.3% in April, the highest since September 2020. Italy’s GDP rose by 0.3% quarter-on-quarter in Q1 2025, surpassing expectations and indicating a steady recovery. Conversely, Germany’s unemployment increased to 6.3% in April, the highest since December 2015, with 2.92 million unemployed, far less than the forecast of 15,000 more.

Broader market sentiment around the BoJ Governor Kazuo Ueda’s speech and Eurozone’s economic data will drive the EUR/JPY exchange rate.