EUR/JPY rose for a second session and traded near 182.80 during Asian hours on Thursday. Upside may be capped as the Japanese yen finds support from expectations of further Bank of Japan (BoJ) tightening.
Reuters reported that markets price in nearly an 80% chance of a BoJ rate hike in April 2026. Policymakers are expected to review new data before taking any further steps.
Japan Data And Yen Support
Japan’s core machinery orders rose 19.1% month on month to ¥1,052.5 billion in December 2025. This followed an 11% drop in November and beat forecasts for a 4.5% rise.
The jump was linked to large, one-off orders from refineries and nuclear fuel producers. Private-sector orders rose 16.8% year on year in December, after a 6.4% fall in November. This also beat forecasts for a 3.9% gain.
The Financial Times reported that ECB President Christine Lagarde may step down before October 2027. It did not give a timeline.
Focus now shifts to Japan’s national CPI on Friday, along with early PMI data for Germany and the Eurozone. The BoJ targets inflation of around 2%. It used QQE from 2013, added negative rates and yield curve control in 2016, and raised rates in March 2024.
Key Risks And Trading Outlook
EUR/JPY is moving higher, but the rally looks fragile, so caution is warranted. The market strongly expects the BoJ to raise rates in April, with close to an 80% probability priced in. That expectation could act as a firm cap on the pair in the weeks ahead.
The case for a stronger yen is growing. Japan’s national core CPI for January 2026 held at 2.4%, staying above the BoJ’s target. While the surge in December 2025 machinery orders was seen as a one-off, it still supports the view that the economy can handle tighter policy. Friday’s national CPI report will be key for confirming (or challenging) this trend.
On the other side, the euro faces headwinds from political uncertainty around the ECB presidency. Leadership doubts can weigh on a currency even when economic data is stable. The latest Eurozone Composite PMI for January 2026 was 48.5, which still signals contraction and makes the euro’s strength look less convincing.
For derivatives traders, this backdrop points to higher volatility into the April BoJ meeting. One-month implied volatility for EUR/JPY has already risen to a six-month high of 9.5%, suggesting the market is preparing for a larger move. In this environment, buying puts to hedge against a downside pullback, or using straddles to trade a volatility rise, may be sensible.
A similar setup played out in 2025. When expectations for a BoJ shift peaked, the yen strengthened quickly and EUR/JPY dropped sharply. The current upswing feels like the type of run-up that has come before past corrections.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
