EUR/JPY dropped close to 184.00 during the Asian session as the Yen gained strength amidst expectations of Japanese intervention. Japan’s Finance Minister, Satsuki Katayama, hinted at potential actions to counter the Yen’s decline, providing the currency with temporary support. The Japanese Yen improved against major currencies, especially rising 0.45% against the US Dollar. However, this relief may be short-lived due to a lack of strong fundamental support.

Bank Of Japan’s Stance And Policy

The Bank of Japan (BoJ) has taken a cautious approach, impacting the Yen even after recent interest rate hikes. The BoJ recently raised rates by 25 basis points to 0.75%, but did not specify when future changes might occur. Former BoJ policymaker Makoto Sakurai has predicted a possible rate increase in mid-2026. Meanwhile, the Euro remains steady as officials from the European Central Bank see few policy changes ahead due to stable inflation forecasts. The BoJ is moving away from its ultra-loose policy as Japanese inflation rises above the 2% target. This shift is influenced by a weaker Yen and higher energy prices, raising inflation concerns. Historically, the BoJ’s monetary policies have led to Yen depreciation, unlike the tightening measures of other central banks. In 2024, the BoJ began to unwind its ultra-loose policy, reversing some trends of Yen weakening.

Impact Of Japanese Intervention

The recent verbal threats of intervention from Japanese officials have caused short-term fluctuations and a pullback in EUR/JPY. We should remain vigilant in the coming weeks, as thin holiday trading can amplify the impact of any government actions. The decline from the 184.92 high indicates growing discomfort among officials. This pattern has been seen before, particularly in 2024 when USD/JPY exceeded the 160 mark. Those interventions resulted in sharp, multi-yen declines that were beneficial for short-term traders, but did not alter the overall trend. Past interventions have provided only temporary support for the Yen before the broader trend resumed. The primary reason for the Yen’s weakness remains the significant interest rate gap. The European Central Bank’s key rate is at 3.50%, while the Bank of Japan’s recent move to 0.75% creates a 275-basis-point difference. This encourages traders to borrow Yen to invest in Euros, a fundamental pressure that official warnings cannot easily counter. For derivative traders, this suggests a dual strategy in the near term. Purchasing short-dated EUR/JPY put options could allow for gains if the government intervenes to buy Yen, capitalizing on heightened volatility and the possibility of official action. On the other hand, any significant dip caused by intervention should be viewed as a buying opportunity for the long term. A sharp decline towards the 180.00 level could be an ideal moment to purchase longer-dated call options. With the current interest rate fundamentals, the likely trend for EUR/JPY remains upward as we approach 2026. Create your live VT Markets account and start trading now.

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