• GBP/JPY fades as UK-Japan interest rates are expected to converge. 
• In the UK, falling inflation is expected to lead to lower interest rates. 
• In Japan rising inflation is increasingly expected to lead to higher interest rates.

GBP/JPY trades a tenth of a percent lower on Friday, at just above 191.000, as converging UK-Japan interest rate expectations reduce the advantage for investors of holding the Pound Sterling (GBP) over the Japanese Yen (JPY), weighing on the exchange rate. 

Easing inflation expectations in the UK have led investors to speculate that the Bank of England (BoE) will cut interest rates in June. This has weakened the Pound Sterling since lower interest rates tend to reduce foreign capital inflows. 

Conversely in Japan, the Bank of Japan increased interest rates from an extraordinarily low, negative 0.1% level, at the bank’s March meeting. The move had many investors speculating as to whether the increase was a one-off or the start of a cycle of rate hikes that could strengthen the Yen over the longer run. 

In a recent interview with the Asahi Shimbun, Bank of Japan (BoJ) Governor Ueda seemed to suggest more interest rate hikes could be down the road given acceñerating inflation. 

Ueda said the positive results of the Shunto spring wage negotiations will be reflected in wages through the summer, and then reflected in higher consumer prices later in the year. 

"Given annual wage talks outcome so far, trend inflation is likely to gradually accelerate," said Ueda.