GBP/JPY strengthens ahead of UK CPI as diverging monetary policies and Yen weakness supports gains

• GBP/JPY trades near 199.30 on Tuesday, supported by diverging central bank policies and broader Yen weakness.
• Focus shifts to UK CPI data on Wednesday, as the BoE monitors for signs of tariff-driven inflation pressure.
• GBP/JPY eyes psychological resistance at 200 amid tariff uncertainty ahead of US-Japan trade talks on Friday.

The British Pound (GBP) continues to appreciate against the Japanese Yen (JPY) on Tuesday, as diverging central bank policies and rising geopolitical tensions support bullish momentum.

At the time of writing, GBP/JPY is trading near 199.30 as focus shifts to UK inflation data on Wednesday.

The Bank of England (BoE) is closely monitoring the June release of the Consumer Price Index (CPI) report in search of signs that tariff-related cost pressures are contributing to persistent inflation.

With the BoE holding interest rates at 4.25% and the Bank of Japan (BoJ) maintaining its ultra-dovish stance at 0.5%, the widening interest rate differential continues to favor the Pound over the Yen.

Adding to yen weakness, Japanese Prime Minister Shigeru Ishiba is scheduled to meet with US Treasury Secretary Scott Bessent on Friday, in a last-minute attempt to revive trade talks ahead of the August tariff deadline.

While the UK currently faces a 10% blanket tariff on exports to the US, President Donald Trump has threatened to raise tariffs on Japanese imports to 25%, covering nearly all categories not already affected by sector-specific duties. At present, US tariffs on steel and aluminum from Japan stand at 50%, while auto parts face a 25% levy.

As an export-reliant economy, Japan remains especially vulnerable to trade friction. The threat of escalating tariffs has compelled the BoJ to maintain a dovish policy stance, diminishing prospects for a rate hike and reinforcing the structural headwinds facing the Yen.

GBP/JPY technical analysis

GBP/JPY is rising toward the upper boundary of its ascending channel near 199.80, just above the June high at 198.81, suggesting continued bullish interest.

The channel that has been forming since April has continued to provide resistance for recent price action and may remain a catalyst for the near-term move.

With the 200 psychological level in sight, the pair remains well-supported above key moving averages, providing additional support for GBP/JPY. Immediate support is found at the 10-day Simple Moving Average (SMA) at 198.29, while the 20-day SMA sits at 197.77. A move lower could bring the 50-day SMA at 195.75 into play, with the potential to push prices back toward the 195.00 psychological level.

GBP/JPY daily chart