The EUR/JPY is currently at 175.70, showing its third consecutive day of decline. This drop in value coincides with the Japanese Yen strengthening after comments from Bank of Japan Governor Kazuo Ueda about possible policy changes that may lead to a rate hike soon. Ueda mentioned that the adjustments to monetary policy would depend on improvements in the economy. In Japan, political dynamics are shifting as opposition parties react to the ruling Liberal Democratic Party’s plan for a new prime minister vote. Hirofumi Yoshimura, co-founder of the Japan Innovation Party, suggested there’s a 50-50 chance of forming a coalition with the LDP. Meanwhile, the Euro is finding some stability as France’s government passed a no-confidence vote due to Prime Minister Sebastien Lecornu suspending pension reforms.

Eurozone Outlook and Monetary Policy

The Euro also benefits as the European Central Bank (ECB) is likely to keep interest rates unchanged. ECB policymaker Edward Scicluna pointed out that the effects of higher trade tariffs on inflation are still unclear, advising caution before drawing conclusions. Today, the Euro experienced the biggest drop against the Swiss Franc, as indicated in a currency change heat map that shows percentage changes among major currency pairs. The EUR/JPY is trading close to 175.70 as the Japanese Yen gains strength. The reason for this is the Bank of Japan (BoJ) signaling potential interest rate increases if the economy performs well. This marks a notable change from the long-standing ultra-easy monetary policy. Recent data shows Japan’s core inflation has exceeded the BoJ’s target of 2% for over a year. In September 2025, inflation rose by 2.7%. Following the end of negative interest rates in spring 2024, the market now expects at least one more rate hike before the year concludes. Traders should be prepared for the BoJ to continue its policy adjustments. In the political arena, the upcoming October 21 vote for a new prime minister adds to the uncertainty. The possibility of a new coalition government could lead to short-term volatility, affecting the Yen’s trajectory. Any signs of political instability may weaken the Yen temporarily, providing an opportunity to buy Euros. **Financial Implications for Traders** Conversely, the Euro is receiving some support, preventing a sharper decline. The French government’s successful no-confidence vote has alleviated significant political risk in the Eurozone, which is reassuring for Euro holders. The European Central Bank (ECB) is further supporting the Euro by indicating it has no immediate plans to lower interest rates. With core inflation in the Eurozone at 2.9% last month, policymakers are proceeding cautiously, keeping the Euro relatively strong against other currencies. Recent statements from the ECB have consistently countered market expectations for early rate cuts. Given the mixed pressures at play, we can expect continued fluctuations in the EUR/JPY pair in the coming weeks. Derivative traders might consider using options to capitalize on the anticipated increase in volatility, particularly around the October 21 political developments in Japan. A long straddle strategy could be effective for profiting from significant price movements in either direction without needing to predict the outcome. Create your live VT Markets account and start trading now.

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