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The GBP/JPY pair trades close to its multi-year high of 214.30 during Friday’s Asian trading session, while the Bank of Japan (BoJ) has kept interest rates steady at 0.75%. The BoJ was expected to leave interest rates unchanged after raising them by 25 basis points (bps) at its last policy meeting of 2025 and guided that monetary policy will remain on a gradual expansion path.

Going forward, the major driver of the JPY will be the government's fiscal decisions, which aim to boost domestic spending. Japan's Prime Minister (PM) Sanae Takaichi will also dissolve the parliament’s lower house to pave the way for a snap election during the day.

Earlier in the day, Japan’s National Consumer Price Index (CPI) for December came in at 2.1% year-on-year (YoY), down from 2.9% in November. CPI data ex. Fresh Food, which is closely tracked by BoE officials, cooled down to 2.4% YoY, as expected, from the prior reading of 3%.

Meanwhile, the Pound Sterling (GBP) trades broadly calm ahead of the release of United Kingdom (UK) Retail Sales data for December and the preliminary S&P Global Purchasing Managers’ Index (PMI) data for January.

UK Retail Sales data, a key measure of consumer spending, is expected to have contracted steadily by 0.1% month-on-month (MoM). This would be the third straight decline in the consumer spending measure.

On the monetary policy front, market participants remain confident that the Bank of England (BoE) will remain on a gradual easing path, even as price pressures accelerated in December.

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