GBP/JPY extends decline below 194.50 ahead of BoE rate decision

• GBP/JPY trades in negative territory for the third consecutive day around 194.45 in Thursday's early European session.
• BoE is expected to keep interest rates on hold on Thursday amid tariff uncertainty and the Israel-Iran conflict.
• Reduced bets for the BoJ rate hikes this year might weigh on the JPY. 

The GBP/JPY cross extends its downside to near 194.45 during the early European trading hours on Thursday. The Pound Sterling (GBP) softens against the Japanese Yen (JPY) due to the looming threat of a broader conflict in the Middle East and possible US involvement. Investors will keep an eye on the Bank of England (BoE) interest rate decision later on Thursday. 

The BoE is anticipated to keep interest rates on hold at 4.25% at its June meeting on Thursday. Nearly all 60 respondents expected the next quarter-point rate reduction to come in August, and a large majority saw a further cut to 3.75% in the final three months of 2025, according to a Reuters poll. Policymakers will closely monitor the impact of Middle East geopolitical tensions, as the conflict between Israel and Iran could well push up the oil prices. 

"The current tensions in the Middle East are causing greater economic uncertainty. We therefore expect the Bank of England to keep rates on hold this Thursday and implement just one further cut this year," said Monica George Michail, associate economist at the National Institute of Economic and Social Research. Any signs of escalation could drag the riskier assets like the Pound Sterling (GBP) lower against the Japanese Yen. 

On the other hand, the Bank of Japan (BoJ) may take a long pause before raising interest rates again this year. BoJ Governor Kazuo Ueda said on Tuesday that the central bank's near-term attention was on downside risks to Japan's economy, with the impact of US tariffs expected to worsen in the second half of this year, suggesting that the BoJ was in no hurry to begin rate hikes. The dovish remarks from the BoJ and US trade policy uncertainty might weigh on the Japanese Yen (JPY) and help limit the GBP/JPY's losses.