EUR/JPY has dropped to about 183.60 as the Yen strengthens due to Japan’s intervention threats. The Bank of Japan (BoJ) did not announce any plans for further monetary tightening in its recent policy update. During the Asian trading session on Wednesday, EUR/JPY fell by 0.27% to nearly 183.60. The Yen gained strength after Japan’s Finance Minister, Satsuki Katayama, warned of possible intervention against excessive Yen fluctuations.

Japan’s Potential Intervention

Katayama mentioned that Japan could intervene against extreme Yen changes. The holiday season around Christmas and New Year is considered a good time for intervention because of lower market activity. After the BoJ raised rates by 25 basis points to 0.75%, the Yen faced selling pressure. The lack of clear guidance from the BoJ about future rate hikes added to this pressure. The Euro is struggling in the Asian session, with expected low market activity ahead of the holidays. The European Central Bank (ECB) sees no urgent need for changes in monetary policy, expecting inflation to remain close to its 2% target. The Yen’s value is affected by Japan’s economic conditions and BoJ policies. It acts as a safe-haven asset, strengthening during market turmoil, even with political concerns about the BoJ’s interventions. The BoJ’s gradual move away from ultra-loose monetary policy is supporting the Yen.

Preparing for Yen Intervention

With Japan’s finance minister suggesting intervention, be ready for a quick and strong Yen strengthening. The low liquidity between Christmas and New Year makes this time ideal for officials to make impactful moves with less pushback. This suggests we should consider positions that profit from a decline in pairs like EUR/JPY. The market is already anticipating a significant move, with one-week implied volatility on EUR/JPY recently jumping above 12%, the highest it’s been in months. Buying options, like puts on EUR/JPY, could be a wise way to prepare for a sudden drop while managing risk. This method allows us to benefit from the expected increase in volatility if intervention happens. We saw a similar scenario in spring 2024 when the Ministry of Finance intervened as USD/JPY crossed 160, spending about ¥9.79 trillion to support the Yen. With EUR/JPY now trading much higher, officials’ warnings hold more weight. Past actions indicate they are serious when the currency moves too quickly. On the other hand, the Euro is not showing much strength. The ECB has indicated it will hold steady, with inflation expectations stable around their 2% target. This lack of upward momentum from the Euro makes the EUR/JPY pair especially vulnerable to a Yen-induced drop. The interest rate gap between the ECB and the BoJ, which has driven a long rise in this pair, now poses a significant risk. An intervention could erase months of gains in carry trades in just hours. Thus, we should view the current threats as a strong signal to reduce or hedge long EUR/JPY positions. Create your live VT Markets account and start trading now.

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