EUR/JPY is holding steady near 168.50 after the Bank of Japan (BoJ) indicated it would keep interest rates the same. The potential for the pair to rise is linked to lower demand for safe-haven currencies due to the recent ceasefire between Israel and Iran. European Central Bank (ECB) member Villeroy de Galhau mentioned that interest rate cuts may be considered, even with oil market fluctuations. After a decline of over 0.50% in the previous session, the pair is trading around 168.30 during Wednesday’s Asian hours. The Japanese Yen showed little change after the BoJ released its June meeting opinions.

BoJ Policy Considerations

The BoJ’s summary showed that some policymakers prefer to keep interest rates steady due to uncertainties from US tariffs on Japan. Most members noted that the effects of these tariffs are still unfolding and may negatively impact business sentiment. In May, Japan’s core inflation hit a two-year high, surpassing the central bank’s 2% target. Positive PMI data from Japan supports the possibility of further rate hikes from the BoJ. Improved risk sentiment could lift EUR/JPY, particularly as tensions in the Middle East ease after the ceasefire between Iran and Israel. However, uncertainties remain regarding the ceasefire’s durability and ongoing concerns about Iran’s nuclear program. ECB policymaker Francois Villeroy de Galhau mentioned a possible rate cut in relation to oil market instability. Meanwhile, chief economist Philip Lane emphasized that monetary policy should reflect both economic activity and inflation risks.

Geopolitical Risks and Market Strategy

At present, EUR/JPY is hovering around 168.30 after falling just over half a percent previously. It is being supported by cautious central bank statements and a temporary calm in the Middle East. However, key challenges are still present. The BoJ’s June summary did not disrupt the market, as many board members remain hesitant to change rates, especially considering the long-term impact of US tariffs on Japanese firms. Some policymakers expressed worries that new American tariffs might hurt corporate sentiment in Japan more than expected. This perspective gives the BoJ more time, even with core inflation above its target and encouraging PMI figures indicating strong domestic activity. Short-term interest rate expectations are low, holding back the yen despite rising price pressures. The lack of noticeable market reaction to the meeting’s opinions suggests a wait-and-see mindset. Currently, volatility is low, leading to weaker directional conviction. For traders looking into options, the lower realized volatility on the yen side allows for exploring low-delta spreads, especially since implied volatility has been higher since late May. In Europe, the situation is evolving. Villeroy hinted that the ECB might consider rate cuts despite oil market volatility, which could affect euro positioning. Lane keeps the focus on data dependency, emphasizing that inflation and economic activity are interconnected when setting future rates. This approach creates an asymmetry in expectations, especially for shorter durations, with the euro being more responsive to data fluctuations. In the short term, the movement of EUR/JPY will depend on whether the ceasefire between Israel and Iran holds. The reduced safe-haven demand following the truce has led to some unwinding of long-yen positions, slightly boosting the pair. However, geopolitical risks often have delayed reactions. Concerns about Iran’s nuclear program are resurfacing, signaling that the situation may be more of a pause rather than a true resolution. Traders looking for directional opportunities should monitor headlines from the Middle East closely. The sensitivity to sudden changes in sentiment makes upside options appealing, particularly since the pair is trading on a narrow base and spikes in volatility could pose a risk. Calendar spreads on EUR/JPY might provide flexibility, especially with upcoming risks from central bank policies and geopolitical developments. To move above 169, there would need to be fresh strength in the euro or a dovish shock from Tokyo, neither of which is guaranteed soon. Currently, the rate differential does not support a breakout. The market is likely to maintain a mild and one-sided bias unless risk-off sentiment resurfaces. This may allow for layered strategies using butterflies or narrow strangles in the next two weeks. With both central banks waiting for new inflation readings and policy statements, it’s wiser to engage with the forward curve rather than trying to catch a sharp market turn right now. Sideways market conditions often favor strategies that benefit from time, so it’s important not to underestimate the gap until significant policy changes occur. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now