The Japanese Yen is struggling in holiday trading, with EUR/JPY close to 184.00 after bouncing back from around 183.50. This pair is near its long-term high of 185.00, reached earlier this month, and is set to finish the year with a gain of over 14%. In 2025, the Yen has weakened due to the Bank of Japan’s careful monetary policy and worries about tariffs affecting Japan’s export-driven economy. The recent BoJ meeting reinforced plans for gradually tightening monetary policy, but there may be resistance from the government against fast changes.

European Economic Outlook

In Europe, the European Central Bank suggests the end of its monetary easing phase, hinting at a possible rate increase next year, which has strengthened the Euro. The Yen’s value depends on Japan’s economy, BoJ policies, bond yield differences, and how traders feel about risks, making it an important global currency. The BoJ often tries to control the Yen by intervening in the market to lower its value, but it does so cautiously and politically. Historically, the Yen was devalued because of the BoJ’s differing policies. However, as these policies change, the Yen has gained some support. It tends to rise during market stress since it is seen as a safe haven, attracting investment when markets are turbulent. As the Yen is the weakest major currency in 2025, traders should expect continued EUR/JPY strength into the new year. The pair has finished the year up over 14%, and as thin holiday trading ends, we could see it approach the resistance level of 185.00. This trend is supported by a clear gap between the policies of the European Central Bank and the Bank of Japan. The Bank of Japan appears reluctant to significantly tighten its monetary policy, despite ending its ultra-loose stance earlier in 2025. Japan’s core inflation for November 2025 was 2.5%, a level that calls for caution rather than swift rate hikes from the bank. Meeting summaries from the BoJ confirm a slow and cautious approach, providing little support for the Yen.

ECB Policy Stance

Meanwhile, the European Central Bank is signaling an end to its rate cutting, especially after recent data showed Eurozone inflation rising to 2.8% in November 2025. This has shifted expectations in the market, with a possible rate hike now considered for the second half of 2026. This more aggressive stance gives a strong reason for continued Euro strength against the Yen. For traders, this environment makes strategies that benefit from a rising EUR/JPY pair appealing. Buying call options can allow participation in potential gains above 185.00 while managing downside risk. The large interest rate difference, with the ECB’s main rate at 4.25% versus the BoJ’s 0.1%, also favors carry trade strategies. However, it’s important to remember the Yen’s safe-haven status, which has been less apparent in 2025. During the 2008 financial crisis, we saw the sudden reversal of carry trades. Any unexpected global market stress in early 2026 could trigger a rush to safety, strengthening the Yen. Thus, traders should consider using options to protect against a sudden market shift. Create your live VT Markets account and start trading now.

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