EUR/JPY traded near 182.40 on Monday, little changed after two days of falls. The cross steadied as the Euro found support against major peers. The Euro gained from improved geopolitical sentiment after The Guardian reported that US Energy Secretary Chris Wright expects the war involving the US, Israel and Iran to end within “the next few weeks”. An end could help Oil supplies normalise and reduce pressure on global energy prices.

Euro Outlook And Ecb Expectations

The Euro outlook remains mixed as higher energy prices can strain the Eurozone trade balance. Money markets now price in two European Central Bank (ECB) rate hikes this year, compared with none expected last month. Focus is on the ECB meeting on March 19, with markets pricing two 25-basis-point hikes, possibly in June and September. Christine Lagarde is expected to address inflation pressures linked to the Middle East conflict. French President Emmanuel Macron said freedom of navigation through the Strait of Hormuz must be restored quickly. He also called on Iran’s president to stop attacks he cited in countries including Lebanon and Iraq. The Japanese Yen may gain support as Japan warned about sharp currency moves. Finance Minister Satsuki Katayama said the government is monitoring markets and may take strong action.

Yen Policy And Volatility Signals

Japan and South Korea issued a joint statement on the rapid falls in the Yen and the Korean Won. The Bank of Japan is expected to keep its rate at 0.75%, with attention on Kazuo Ueda’s comments. Looking back at the analysis from this time last year, in March 2025, we were watching a tense EUR/JPY cross stuck between a hawkish European Central Bank and a Japanese government threatening intervention. That tension has now resolved into a clearer, divergent path for the two central banks. As a result, traders should be positioned for decisive moves rather than sideways stabilization. The ECB did follow through with the two rate hikes priced in during 2025 as energy costs fueled inflation. However, with the latest Eurozone Harmonised Index of Consumer Prices (HICP) data showing core inflation has fallen to 2.5%, we believe the ECB’s next move will be a rate cut. This contrasts sharply with last year’s view and places downward pressure on the Euro. On the other side of the cross, the warnings from Japanese authorities in 2025 were not just talk, as we saw direct currency market intervention in the second half of last year. The Bank of Japan also followed through on its hawkish signals, and its policy rate now stands at 0.75%. This fundamental support for the Yen is a major shift from the dynamic we were analysing twelve months ago. This growing policy divergence has kept option markets on alert, and we are seeing this reflected in pricing. Three-month implied volatility for EUR/JPY is now hovering around 10.2%, a significant increase from the sub-8% levels seen in early 2025. This suggests the market is expecting larger price swings in the quarter ahead. The geopolitical optimism from last year about a swift end to the conflict in the Middle East proved to be premature. With Brent crude oil prices remaining stubbornly above $85 per barrel, these sustained high energy costs continue to weigh more heavily on the import-dependent Eurozone than on Japan. This factor reinforces the negative outlook for the Euro half of the pair. Given this environment, we see value in purchasing EUR/JPY put options with expirations in the next three to six months to profit from a potential decline. These options provide a defined-risk way to position for a stronger Yen, driven by either further BoJ tightening or intervention. For those anticipating continued sharp movements, establishing long volatility positions through straddles could also prove profitable. Create your live VT Markets account and start trading now.

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