EUR/JPY climbed above 183.50 and reached about 183.60 during Asian trading on Monday. The Euro gained support after EU ambassadors decided to push back against US tariff measures and prepare for possible retaliation. US President Donald Trump announced tariffs on goods from eight European countries that opposed his Greenland acquisition plan. A 10% tariff is set to begin on February 1 for products from Denmark, Sweden, France, Germany, the Netherlands, Finland, Britain, and Norway. Japan’s Industrial Production dropped by 2.7% in November 2025, exceeding the 2.6% preliminary estimate. This decline reverses a 1.5% increase in October and is the largest drop since January 2024.

Impact of the Japanese Yen

The Japanese Yen is limiting the gains of EUR/JPY due to expected rate hikes from the Bank of Japan and increased fiscal spending. However, the central bank is likely to keep its policy rate at 0.75% this week, considering potential changes in June. Finance Minister Satsuki Katayama mentioned a possible joint intervention with the US to support the Yen, stating that all options, including direct market intervention, are on the table to combat Yen depreciation. Tariffs are customs duties on imported goods designed to protect local industries and give them a competitive edge. They are different from taxes, which are applied at the point of sale. The effects of tariffs are debated; some see them as protective, while others warn they could lead to trade wars.

Expected Market Volatility

With new US tariff threats against major European countries, we should expect significant volatility in EUR/JPY over the coming weeks. The February 1 deadline is crucial, and options pricing shows that one-month implied volatility for the pair has soared to 14.5%, the highest since the aftermath of the 2024 US elections. This situation makes simple spot positions riskier; traders should consider strategies that profit from price fluctuations rather than just direction. The Euro’s strength is delicate and highly influenced by news from Brussels and Washington. Throughout 2025, we observed how sensitive the Euro was to trade talks, and any indication of a weakening EU stance could lead to a quick reversal. Traders might look into buying put options on the Euro to protect against the risk of President Trump implementing his tariff plan, which could heavily impact export-driven economies, like Germany. On the flip side, the Yen faces mixed pressures creating uncertainty. The negative industrial production data from November 2025 is a challenge, but the Bank of Japan’s more aggressive approach and the Ministry of Finance’s threats of intervention provide some support for the currency. Recent fears of interventions have led to nearly $50 billion being withdrawn from carry trades, showing how quickly market sentiment can shift against a weak Yen. For those trading derivatives, this situation makes long volatility positions, like straddles or strangles on EUR/JPY, appealing as we approach the February 1 deadline. Such strategies allow us to benefit from significant price movements in either direction—whether it’s a rally if tariffs are avoided or a drop if they are enforced. Historically, these strategies perform well during times of high geopolitical uncertainty, like the Brexit negotiations. Additionally, we should watch the wider market impact, as these tariff threats extend beyond the Euro. A full trade dispute could spark a global risk-off sentiment, strengthening the safe-haven Yen against commodity currencies such as the Australian and Canadian dollars. The VIX index, a major measure of market fear, has already risen by 3 points to 19.8 since the announcement, indicating that traders should brace for broader market turbulence. Create your live VT Markets account and start trading now.

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