GBP/JPY continues to climb as political instability in Japan puts pressure on the Yen

GBP Strengthens Against JPY Amid Political Uncertainty in Japan

The British Pound advanced against the Japanese Yen on Tuesday, buoyed by widespread Yen weakness as political turbulence in Japan dampened investor confidence. At the time of reporting, GBP/JPY hovered near 213.82, gaining approximately 0.40% for the day and approaching highs not seen since July 2008.

The Yen’s recent decline follows news that Prime Minister Sanae Takaichi may dissolve the lower house and call for an early general election, potentially as soon as February. This possibility has heightened expectations for more expansive fiscal policies and increased government spending, fueling concerns among investors about Japan’s already substantial national debt.

Anticipation of greater fiscal stimulus and additional government borrowing has reverberated through Japan’s bond market. The yield on 10-year Japanese Government Bonds (JGB) surged to around 2.166%, marking its highest point in nearly three decades.

These political developments are adding complexity to the Bank of Japan’s monetary policy strategy. Heightened uncertainty and fiscal risks may prompt the central bank to delay its next interest rate hike, as policymakers tread carefully with their approach to policy normalization.

Currency markets have responded with renewed selling of the Yen. The USD/JPY pair is trading near its highest level in 18 months, while the Yen has reached record lows against both the Euro and the Swiss Franc (CHF). This broad-based weakness has reignited speculation about possible intervention, with Japanese officials continuing to caution against sharp and disorderly currency movements.

Japan’s economic calendar is relatively quiet this week, keeping market attention fixed on political developments and currency flows. Investors are now looking ahead to Thursday’s Producer Price Index (PPI) data for further direction.

UK Economic Updates

In the UK, retail sales growth slowed toward the end of last year. According to figures from the British Retail Consortium, retail sales increased by 1.0% year-on-year on a like-for-like basis in December 2025, representing the slowest growth in seven months. While this result surpassed forecasts for a 0.6% rise, it was down from November’s 1.2% gain.

Looking forward, market participants are awaiting a busy set of UK economic reports on Thursday, with monthly Gross Domestic Product (GDP) data expected to be the main highlight.