GBP/JPY rises to near 196.50 as BoJ remains uncertain about economic impact of US tariffs

• GBP/JPY appreciates as the Japanese Yen struggles amid the BoJ’s uncertainty over the US tariff impact.
• Japan’s political uncertainty further complicates the BoJ's policy normalization path.
• The Bank of England is widely expected to implement a 25 basis point rate cut on Thursday.

GBP/JPY recovers its recent losses registered in the previous session, trading around 196.50 during the European hours on Monday. The currency cross gains ground as the Japanese Yen (JPY) depreciates, as the Bank of Japan (BoJ) remains uncertain over the economic impact of higher United States (US) tariffs.

Moreover, the Japanese Yen (JPY) remains under pressure due to domestic political uncertainty, which could further hinder the Bank of Japan’s (BoJ) efforts to normalize monetary policy. The ruling Liberal Democratic Party’s loss in July raises the likelihood of further delays to BoJ rate hikes.

Meanwhile, Japanese Economy Minister and chief trade negotiator Ryosei Akazawa said on Monday that the recently announced US-Japan trade agreement is not a legally binding commitment. Akazawa highlighted that $550 billion investment in the US could ultimately lead to benefit Japan. He hopes to implement the US cars deal as early as possible.

Japanese Prime Minister Shigeru Ishiba stated that the government is ready to compile an additional budget to cushion the economic impact of US tariffs, acknowledging growing political pressure following his coalition’s recent loss in the upper house elections.

The Pound Sterling (GBP) may face challenges as the Bank of England (BoE) is widely anticipated to deliver a 25 basis point rate cut during its monetary policy decision on Thursday. Moreover, concerns rise over the United Kingdom’s (UK) economic outlook and fiscal health. Investors remain increasingly pessimistic about Britain’s growth prospects, fueling expectations of the BoE’s interest rate cut in August.