GBP/JPY declines 0.20% to hover around 193.40 level
Japan's Q1 economic contraction exceeds market forecasts
Diverging central bank policies create cross-currency pressure
The who owns the most bitcoinGBP/JPY currency pair continues its bearish momentum, trading near 193.40 in Friday's European session. This downward movement occurs despite Japan reporting weaker-than-expected economic growth data, highlighting the complex interplay between macroeconomic fundamentals and currency valuations.
Japan's Cabinet Office released preliminary figures showing the nation's economy contracted 0.2% quarter-over-quarter in Q1 2025, marking the first decline in twelve months. This performance fell below market expectations of a 0.1% contraction and represents a significant reversal from Q4 2024's 0.6% expansion. On an annualized basis, Japan's GDP declined 0.7% year-over-year, substantially worse than the anticipated 0.2% drop and the previous quarter's 2.2% growth.
Interestingly, the Japanese Yen's strength persists despite these disappointing economic indicators. Market participants attribute this resilience to the Bank of Japan's (BoJ) continued commitment to policy normalization, as evidenced in the recently published Summary of Opinions from their April 30-May 1 meeting. The central bank maintains its position that rising wages and prices will support gradual interest rate increases, providing fundamental support for the JPY.
Conversely, the Pound Sterling faces headwinds from shifting expectations regarding Bank of England (BoE) monetary policy. While markets currently price in approximately 48.6 basis points of rate cuts by year-end, with no changes anticipated at the June meeting, some analysts suggest the BoE may need to maintain higher interest rates longer than currently projected. This potential policy divergence could limit the GBP's downside against the JPY in coming sessions.
The currency pair's movement reflects broader market sentiment weighing economic growth prospects against central bank policy trajectories. Traders appear more focused on the BoJ's normalization path than Japan's short-term economic weakness, while simultaneously reassessing the timing and magnitude of potential BoE rate adjustments.