EUR/JPY is steady, trading around 183.80 in early European trading, just below 184.00. Anticipated rate hikes by the Bank of Japan (BoJ) in 2026 could boost the Japanese Yen (JPY) against the Euro (EUR). Markets are quieter as traders prepare for the New Year holiday. Recently, the BoJ raised its policy rate from 0.50% to 0.75%, marking the highest level in 30 years. Some BoJ officials believe more hikes may be necessary due to a weaker Yen and rising long-term interest rates linked to a lower policy rate compared to inflation.

Japan’s Financial Strategy

Japan’s Finance Minister mentioned that the country can address excessive Yen fluctuations, possibly using verbal interventions to support the JPY. This situation may complicate the EUR/JPY exchange rate. The Euro’s potential decline might be limited as signs show the European Central Bank (ECB) is likely finished with its rate cuts. The ECB has kept rates steady, expected to stay unchanged for a while. ECB President Christine Lagarde said future rate decisions depend on economic data. The Japanese Yen, heavily traded, is influenced by Japan’s economic performance and BoJ strategies. Its value is also affected by the gap between Japanese and US bond yields and overall market sentiment. BoJ decisions are crucial for the Yen. Recent policy changes are starting to bolster it. The previous ultra-loose monetary policy had widened yield gaps with the US, favoring the US Dollar. However, the BoJ’s upcoming policy shifts are reducing this difference. The Yen is usually seen as a safe-haven asset, gaining strength during market turmoil due to its stability.

Market Trends and Strategies

As the EUR/JPY pair sits just below 184.00, it signals the BoJ’s intention for tighter monetary policy. Holiday trading is light, but there’s growing pressure on the Yen to strengthen. This suggests we should prepare for possible declines in this pair as the new year approaches. The recent interest rate hike to 0.75% reflects a significant shift by the Japanese central bank, continuing its normalization policy that began in 2024 after years of ultra-loose conditions. With Japan’s core inflation at 2.8% for November 2025, the BoJ has solid reasons to continue raising rates. For traders using derivatives, this outlook favors strategies that profit from a declining EUR/JPY. Consider buying put options with strike prices below 183.50, anticipating a break below current support. Selling call option spreads with a cap around 184.50 could also be effective, given the limited potential for upward movement. The possibility of direct market intervention by Japanese authorities adds weight to a bearish outlook. Past interventions to support the Yen in 2022 show their seriousness, and recent comments from the Finance Minister warn against pushing the pair higher soon. On the Euro side, potential downside risks appear limited. The ECB has maintained its main interest rate at 3.50% and seems to have finished its rate-cutting cycle for now. With a low chance of a rate cut in early 2026, the Euro is likely to hold steady, making a JPY-driven move more likely. The main factor for us is the closing interest rate gap between Europe and Japan. For years, this gap favored holding Euros, but as the BoJ tightens and the ECB holds steady, that advantage is narrowing. This fundamental shift is likely to apply consistent downward pressure on EUR/JPY in the coming weeks. Create your live VT Markets account and start trading now.

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