GBP/JPY falls as Yen strengthens on BoJ tightening signals, UK tax hikes

• GBP/JPY drops toward 201.00 as the Japanese Yen strengthens amid global uncertainty.
• Comments from Bank of Japan Governor Kazuo Ueda fuel expectations of gradual monetary tightening.
• UK Chancellor Rachel Reeves confirms new tax hikes in the upcoming Autumn Budget.

GBP/JPY drops toward 201.00 on Friday, losing 0.50% at the time of writing, as the Japanese Yen (JPY) extends its recovery, supported by growing expectations of a future rate hike by the Bank of Japan (BoJ) and by a global environment favoring safe-haven assets.

BoJ Governor Kazuo Ueda stated on Friday that he intends to "keep gathering more data" before deciding whether to raise interest rates at the October policy meeting, adding that the degree of monetary easing would be adjusted according to the likelihood of the central bank's growth and inflation forecasts materializing.

Ueda comments, echoed by Deputy Governor Shinichi Uchida, who noted that Japan's economy is "recovering moderately" and that the central bank would tighten policy if its projections are met, reinforced the view of a gradual shift toward normalization by year-end.

This outlook strengthens the Japanese Yen, further supported by renewed US-China trade tensions and domestic political uncertainty, both of which boost demand for safe-haven assets.

Despite the Liberal Democratic Party (LDP) ending its coalition with the Komeito, complicating Sanae Takaichi's bid to become Japan's first female Prime Minister, markets see these developments as easing concerns over Japan's fiscal outlook, thus underpinning the currency.

In the United Kingdom (UK), the Pound Sterling (GBP) trades with limited direction. Chancellor of the Exchequer Rachel Reeves confirmed that the Autumn Budget, due in November, will include new tax increases to preserve fiscal stability. These announcements weigh on the GBP rebound potential, even as the UK Gross Domestic Product (GDP) grew by a modest 0.1% MoM in August.

Investors are also focused on upcoming speeche by Bank of England (BoE) Deputy Governor for Financial Stability Sarah Breeden later in the day. Catherine Mann, a member of the Monetary Policy Committee (MPC), recently warned that it would be premature to cut interest rates further, noting that the labor market is only "modestly loosening."

Against this backdrop, the widening policy divergence between a more hawkish BoJ and a cautious BoE continues to weigh on GBP/JPY, which could extend its decline if Japanese Yen strength persists.