EUR/JPY traded near 184.40–184.50 in Asian hours on Friday, after a 1.88% fall the previous day. The move came as the Japanese yen weakened after mixed Tokyo inflation figures.
Tokyo’s headline CPI rose 1.5% year-on-year in April, up from 1.4%. Core CPI excluding fresh food rose 1.5% year-on-year, below the 1.8% forecast and down from 1.7%, while CPI excluding fresh food and energy eased to 1.5% from 1.7%.
Tokyo Inflation And Yen Reaction
The yen had earlier found support after a sharp move that was widely linked to possible action by Japanese authorities. The Finance Ministry has not confirmed any operation, and traders are assessing the likelihood of further rounds.
Vice Finance Minister for International Affairs Atsushi Mimura did not comment on intervention or crude oil futures. He said Japan remains in close contact with the US on currency issues.
The euro also had support after the ECB kept interest rates unchanged at its April meeting, with the deposit rate held at 2%. The ECB said the outlook is broadly unchanged, while upside risks to inflation and downside risks to growth have increased.
Looking back to this time last year, in April 2025, we saw the market grapple with mixed signals from Japan. The weak core inflation figures suggested the Bank of Japan had little reason to raise interest rates, which kept the Yen under pressure. This fundamental weakness was, however, briefly interrupted by suspected government intervention to prop up the currency.
Options Volatility And Intervention Risk
The interventions we saw last year created massive, short-term volatility but did not change the Yen’s long-term downward trend. We can see a similar pattern to the interventions of 2022 and 2024, where trillions of Yen were spent for only temporary relief. For derivative traders, this means that while the underlying trend for a weaker Yen remains, the risk of sudden, sharp reversals is very high, causing implied volatility on EUR/JPY options to spike above 12% during those periods.
The policy gap between Europe and Japan has only widened since the ECB’s cautious stance in April 2025. Persistently sticky Eurozone inflation, which is currently running at 2.8%, has forced the ECB to maintain its deposit rate at 2.25%. In contrast, the Bank of Japan has only nudged its own rate to 0.1%, creating a significant interest rate differential that continues to favor the Euro.
This environment suggests that traders could consider buying call options on EUR/JPY to profit from the expected continued rise, but with a defined, limited risk if another intervention occurs. Selling out-of-the-money put options could also be a viable strategy to collect premium, capitalizing on the high implied volatility and the belief that any Yen strengthening will be short-lived. However, this strategy carries significant risk if an intervention is larger than expected.
The central conflict for the market remains the Bank of Japan’s passive monetary policy versus the Finance Ministry’s active currency intervention. This tension is the primary reason for the elevated volatility we are seeing. Traders should therefore focus on strategies that can profit from both the underlying upward trend in EUR/JPY and the periods of extreme price swings.
