GBP/JPY rose on Monday, ending a two-day decline, as tensions in the Strait of Hormuz kept Oil prices high and weighed on the Yen due to Japan’s reliance on imported energy. The pair traded near 214.78, after reaching 215.91 last week, its highest level since July 2008.
Over the weekend, a brief reopening of the Strait of Hormuz was reversed and Iran reasserted control of the route. Iran cited a US naval blockade of its ports as a breach of ceasefire terms, while the US Navy intercepted and boarded an Iranian cargo vessel in the Gulf of Oman.
Higher Oil prices added to inflation risks and complicated central bank planning. This may delay Bank of England rate cuts, while in Japan higher import costs could slow the pace of Bank of Japan policy normalisation.
Reuters reported on Monday, citing five sources, that the BoJ is likely to hold off on raising interest rates at its upcoming meeting. The report linked this to reduced prospects of a near-term resolution to the Middle East conflict.
This week, focus turns to UK labour market data, inflation figures, and Retail Sales, plus Japan’s National CPI. On charts, GBP/JPY is above the 21-day SMA at 212.98 and the 100-day SMA at 211.21, with RSI at 60.82 and ADX at 18.90.
The growing difference in policy between the UK and Japan, made worse by high oil prices, suggests the pound will continue to strengthen against the yen. With Brent crude recently hitting a 20-month high over $115 a barrel, Japan’s reliance on importing over 99% of its oil is putting sustained pressure on its currency. This environment makes bullish derivative positions on GBP/JPY increasingly compelling.
We believe the Bank of England will be forced to delay interest rate cuts, providing support for the pound. UK inflation has remained persistent, with the latest figures from March 2026 showing the Consumer Price Index at 3.5%, well above the 2% target. Consequently, we should structure trades that profit from the BoE keeping its policy tight through the upcoming summer months.
In contrast, the Bank of Japan appears cautious about raising rates too quickly. We remember that the BoJ only moved away from negative interest rates about two years ago, in March 2024, and the high cost of energy imports now threatens to slow down the nation’s economic growth. This hesitation is a key factor that we expect will keep the yen weak.
Given this outlook, we see an opportunity in buying call options on GBP/JPY with expirations in the next four to six weeks. A break above the recent peak of 215.91 could attract more buyers, making it sensible to target a move toward the 218.00 level. We can use the support near the 21-day average around 213.00 as a critical level to reassess our positions.
However, we must watch this week’s key economic data, as it is the primary risk to this strategy. A surprise drop in UK inflation or a weaker jobs report could quickly undermine the pound. Likewise, an unexpectedly strong Japanese inflation number could pressure the Bank of Japan to act more decisively, strengthening the yen.
