GBP/JPY rises as BoE holds rates at 4.25% and BoJ maintains dovish stance

• The Bank of England leaves interest rates unchanged at 4.25%, which supports the strength of the Pound.
• GBP/JPY rises as the BoE holds rates, while the BoJ remains dovish ahead of CPI.
• The Bank of Japan will release its inflation data and BoJ Minutes on Thursday, with UK Retail Sales on Friday's economic agenda.

The British Pound (GBP) is extending gains against the Japanese Yen (JPY) on Thursday after the Bank of England (BoE) held its benchmark interest rate at 4.25%. 

The decision reinforced the growing monetary policy divergence with the Bank of Japan (BoJ), driving GBP/JPY higher toward key technical resistance.

At the time of writing, GBP/JPY is trading near 195.60, rebounding from recent lows as the yield gap between the UK and Japan continues to favor the Pound. 

Bank of England maintains interest rates at current levels, supporting the Sterling

The BoE voted 7-3 to keep rates unchanged, with three members favoring a 25-basis-point cut, while seven members voted for a hold.

However, the overall tone of the statement was less dovish than markets anticipated. BoE Governor Andrew Bailey emphasized that while rate cuts are likely to occur, they will be "gradual and carefully considered,".

He added, "I expect that the path of interest rates will continue to be gradually downwards. Now I'm not giving you a prediction on August by saying that." 

Bailey also cited global risks, noting that "the world is highly unpredictable," referencing weakness in the UK labor market, elevated energy prices, and persistent geopolitical uncertainties.

In contrast, the BoJ continues to maintain its ultra-loose monetary policy with its benchmark rate at 0.5%. 

BoJ maintains a dovish tone ahead of Thursday's inflation data

On Tuesday, BoJ Governor Kazuo Ueda reiterated the need to confirm a "sustainable and stable" rise in inflation before considering a policy shift, effectively pushing back against market speculation of a rate hike as early as July. 

The Yen remains under pressure as a result, with the UK-Japan yield differential now exceeding 3.5%.

Looking ahead, market participants will closely monitor the BoJ Monetary Policy Meeting Minutes and Japan's national Consumer Price Index (CPI) release at 23:30 GMT. 

Any upside surprise in core inflation could influence the Yen's trajectory, although the BoJ's overall tone suggests limited near-term risk of tightening.

Meanwhile, the UK will release May Retail Sales data at 06:00 GMT on Friday. A strong print may provide fresh bullish momentum for sterling pairs, including GBP/JPY.