The EUR/JPY is stable above 178.00, close to its record high from Thursday. Current prices are around 178.15, showing slight stability and expectations for strong monthly gains. The Japanese Yen got a temporary lift from stronger consumer inflation data in Tokyo. However, this boost faded quickly because of uncertainty regarding the timing of the next Bank of Japan (BoJ) rate hike and new Prime Minister Sanae Takaichi’s plans for aggressive fiscal spending. This limits how much the Yen can rise.

European Central Bank Policy

The European Central Bank (ECB) has kept interest rates steady at 2% for the third meeting in a row. The ECB believes the Eurozone economy is strong and inflation is close to the 2% goal, which supports the upward trend of EUR/JPY. The ECB oversees monetary policy in the Eurozone, striving for price stability with inflation around 2%. It uses tools like Quantitative Easing (QE) and Quantitative Tightening (QT) to affect the Euro, where QE generally weakens it and QT strengthens it. Since the EUR/JPY is near its all-time high of 178.00, it seems poised to rise further. There’s a clear difference in policies: the ECB is keeping its rate at 2%, while the BoJ is hesitant about tightening. This gap should continue to benefit the Euro against the Yen in the upcoming weeks.

Japan’s Economic Challenges

Japan’s new Prime Minister and her fiscal plans create uncertainty that weighs on the Yen. Recent data reinforces this sentiment. Japan’s national CPI for October was stubborn at 2.8%, but Q3 GDP growth was only 0.1%. This leaves the BoJ with little room to raise rates aggressively. Such economic weakness suggests the BoJ will be cautious, making significant Yen strength unlikely. Conversely, the Eurozone economy shows stability, which supports the Euro. The latest Eurozone HICP inflation reading is at 2.1%, comfortably near the ECB’s target. The composite PMI stands at 50.8, indicating slight economic growth. This stable backdrop provides a solid foundation for the Euro, especially compared to a weak Yen. For derivative traders, this scenario makes buying call options on EUR/JPY an appealing strategy to capture potential gains while managing risk. The ongoing trend indicates that any pullbacks should be seen as buying opportunities. Selling out-of-the-money put options might also be a good idea to collect premium, banking on limited downside. Looking back, this situation resembles the long period of Yen weakness from 2022 to 2024 when interest rate differences pushed the currency to multi-decade lows. Traders should stay alert for any unexpected hawkish comments from the BoJ or verbal interventions from the Ministry of Finance. While currently unlikely, these events could pose risks to long EUR/JPY positions. Create your live VT Markets account and start trading now.

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