The Euro is currently trading at about 176.26 against the Japanese Yen, ending a four-day losing streak. Traders are considering Japan’s plans for fiscal stimulus and the different monetary policies of the Bank of Japan and the European Central Bank.
Japan is preparing a stimulus package worth more than last year’s ¥13.9 trillion to combat inflation and boost spending. This package will include tax cuts, energy subsidies, and investments in technology. However, 65% of surveyed economists are worried about Japan’s financial health.
Japanese Economic Outlook
Japan’s Economics Minister has stated that the economy will get support until wages start to rise. The focus is on low consumption and persistent inflation. Another survey indicates that the Bank of Japan may raise interest rates, with 60% of economists predicting an increase to 0.75% by the fourth quarter.
In the Eurozone, the ECB is expected to keep rates at 2.00% until at least 2027, hoping for modest economic growth. Predictions for GDP growth stand at 1.2% for 2025, with inflation at 2.2%. This suggests the central bank doesn’t see a need for further easing. The ECB’s next policy decision is scheduled for October 30, following the Bank of Japan’s meeting.
The EUR/JPY pair is hovering around 176.00, with the market waiting for next week’s developments. The main focus is on the differing paths of the Bank of Japan, which seems ready to raise rates, and the European Central Bank, which remains cautious. This difference in policies will shape trading in the coming weeks.
Japan’s significant stimulus package could usually weaken the yen. However, the Bank of Japan is primarily focused on inflation, with Japan’s September 2025 core CPI reported at 2.8%, exceeding the 2% target. This could lead the BoJ to hike rates soon, potentially as early as the meeting on October 29-30.
Central Bank Meetings Impact
In Europe, the situation is relatively stable, with the ECB likely to maintain rates at 2.00% on October 30. Recent data shows Eurozone inflation stable at 2.3%, while the latest manufacturing PMI numbers indicate slow growth. There’s little pressure on the ECB to alter its neutral stance for now.
A significant policy shift started when the BoJ ended its negative interest rate policy in 2024. This laid the groundwork for the current normalization we see today. This is in stark contrast to the ECB, which finished its aggressive rate hikes over two years ago.
Given this outlook, it makes sense to prepare for a lower EUR/JPY, as an unexpected hawkish move from the BoJ could result in a steep drop. One-week implied volatility has already climbed to 9.5%, indicating traders are anticipating significant movement around the central bank meetings. Buying put options or setting up put spreads on EUR/JPY could be an effective strategy to take advantage of this potential decline while managing risks.
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