GBP/JPY jumps to fresh year-to-date high as Yen weakness amid Japan's political shift

• GBP/JPY kicks off the week with a sharp gap up, hitting its highest level since July 2024 and setting a new year-to-date high.
• The Japanese Yen weakens after Sanae Takaichi's LDP leadership victory, reinforcing expectations of a more dovish policy stance.
• Sterling supported despite UK fiscal concerns, with markets awaiting BoE Governor Bailey's speech later Monday and FPC meeting minutes on Wednesday.

The British Pound (GBP) strengthens against the Japanese Yen (JPY) on Monday, opening the week with a sharp gap higher as the Yen weakens following Japan's political transition. At the time of writing, the cross is trading near 202.15, up almost 1.65% on the day, marking its highest level since July 2024 and setting a fresh year-to-date high.

The sharp move reflects renewed selling pressure on the Yen after Sanae Takaichi won the leadership contest of Japan's ruling Liberal Democratic Party (LDP) on October 4, positioning her to become the country's first female prime minister when parliament votes on October 15.

The shift in leadership has already rippled into expectations about monetary policy. Takaichi's policy stance is seen as dovish, favoring continued fiscal support and a cautious approach to tightening. According to a BHH report, the swaps market has slashed the probability of a Bank of Japan (BoJ) rate hike at its October 30 meeting from around 60% to just 25%.

Investors will be watching closely in the coming weeks for how Takaichi's new administration and BoJ Governor Kazuo Ueda align on fiscal and monetary priorities. Reports suggest Takaichi may appoint a heavyweight political figure as Finance Minister to reassure markets about fiscal discipline. Analysts caution that if the BoJ does raise interest rates at its October meeting, the Yen's current weakness could prove short-lived.

On the United Kingdom (UK) side, Sterling's gains come despite lingering fiscal concerns ahead of the government's November budget and ongoing scrutiny of the country's debt outlook. The Bank of England (BoE) kept interest rates steady at its last meeting, with policymakers divided over the timing of future easing. All eyes will be on Governor Andrew Bailey's speech later Monday, and on the Financial Policy Committee (FPC) meeting minutes due Wednesday, for clues about how the BoE plans to balance financial stability risks with future rate decisions.