The Japanese Yen (JPY) rallied strongly on Monday, driving the GBP/JPY cross below the 209.00 mark to its lowest level since February 24, amid aggressive repricing toward a faster pace of interest rate hikes by the Bank of Japan (BoJ) [1]. Traders have fully priced in a 25 basis point rate hike at the BoJ's September 17–18 meeting, with some analysts even considering the risk of a larger hike to anchor inflation expectations and cap long-end yields [1][2]. Renewed speculation of currency market intervention by Japanese authorities further boosted the JPY, exerting heavy downward pressure on GBP/JPY, while technical selling after a break below the 210.00 psychological mark accelerated the decline [1]. The JPY was the strongest major currency on the day, gaining 1.20% against the US Dollar, 1.11% against the Euro, and 1.07% against the British Pound [1].
In the CHF/JPY cross, downside risks have increased as the pair failed to reclaim its February–July range of 198–204 and slipped to 193, its lowest since December [2]. DBS Group Research strategist Philip Wee highlighted that monetary policy divergence favors the JPY, with near-100% market conviction for a 25 bps BoJ hike at the September 18 meeting, while the Swiss National Bank (SNB) is expected to keep rates at 0% at its September 24 meeting [2]. Switzerland's inflation remains near the lower bound of the official 0–2% price stability range, and the SNB is looking through energy-driven inflation, reducing the CHF's yield appeal [2]. Additionally, asymmetric FX intervention risks are noted, with recent joint intervention by Washington and Tokyo to arrest JPY depreciation, while the SNB signals readiness to counter excessive CHF appreciation [2].
Meanwhile, the Swiss Franc (CHF) ticked up against the US Dollar (USD) following the release of Swiss employment and foreign currency reserves data. The USD/CHF pair retreated to the 0.8090 area after Swiss unemployment remained unchanged at 3.1% in August for the fifth consecutive month, and SNB foreign currency reserves increased to CHF 770 billion from CHF 768 billion in July [3]. Despite the CHF's uptick against the USD, monetary divergence is expected to keep USD dips limited, with the SNB anticipated to leave its benchmark rate at 0% for the rest of 2026 and the first half of 2027 [3].
According to [1], concerns over Japan’s fiscal outlook may limit further JPY gains, while a modest uptick in the GBP, bolstered by a weaker USD, could help limit downside for GBP/JPY. However, the fundamental backdrop and technical breakdown suggest that any recovery in GBP/JPY is likely to be limited and seen as a selling opportunity [1].
CONCLUSION
The Japanese Yen's surge, driven by expectations of a BoJ rate hike and possible intervention, has pressured both the British Pound and Swiss Franc, with significant declines in GBP/JPY and CHF/JPY. Policy divergence and technical factors suggest further downside risks for these crosses, while the SNB is expected to maintain its accommodative stance. Market sentiment favors the Yen, and any recovery in GBP/JPY or CHF/JPY is likely to be limited.