EUR/JPY is holding steady around 176.50 as demand for safe-haven assets decreases, thanks to improving trade relations between the US and China. President Trump indicated that China’s economy would not be affected, stressing a desire to support rather than harm it. EUR/JPY has bounced back from earlier losses, trading near 176.50 in Asian hours. Weakening demand for the Japanese Yen is a result of positive US-China trade talks. Trump has made threats of 100% tariffs on Chinese imports, which China warned could lead to retaliatory actions.

Political Factors Affecting the Yen

The Japanese Yen may face downward pressure as expectations grow that Japan’s next Prime Minister, Sanae Takaichi, will increase fiscal spending and keep monetary policy loose. Political tensions arise as Japan’s Komeito party’s exit from the ruling coalition could challenge Takaichi’s leadership and weaken the ruling party. Stable political conditions in France are beneficial for the Euro, as President Macron plans to appoint a new prime minister after Sebastien Lecornu’s resignation. Minutes from the European Central Bank (ECB) meeting showed confidence in current policies to reach the 2% inflation target, with interest rates seen as adequate to manage inflation risks. The Euro is strengthening against major currencies, making notable gains against the New Zealand Dollar. A heat map showcases the percentage changes, highlighting the Euro’s strong performance. We expect the EUR/JPY cross to continue its upward trend around the 177.10 level, building on earlier positive sentiment. The weakening demand for the safe-haven yen is a major factor, with ongoing trade discussions between the US and China lowering market worries. This stable geopolitical situation is making riskier assets more appealing.

Implications for Traders

The Bank of Japan’s differing policy compared to other central banks is the key reason for yen weakness. With Japan’s core inflation for Q3 2025 at a stubborn 2.3%, the BoJ’s commitment to its very loose monetary policy continues to put pressure on the yen. We have seen this pattern since the inflation surge of 2022. For derivative traders, this market condition suggests that buying call options on EUR/JPY may be a smart choice. Options set to expire in November or December 2025 with strike prices around 178.00 or 179.00 could allow traders to benefit from further upward movement. The clear direction from the Bank of Japan supports this optimistic view. On the flip side, the Euro is finding solid footing. The European Central Bank has kept its position strong, bolstered by recent data showing Eurozone core inflation at 2.1% in September 2025, very close to their target. This stability sharply contrasts with Japan’s policy of yen devaluation. That said, we need to monitor any renewed political uncertainty in France. While the current situation appears stable, unexpected developments could quickly diminish enthusiasm for the Euro. Traders may want to consider bull call spreads to limit potential losses if French political risks arise again. Reflecting on the significant yen depreciation observed in 2023 and 2024, we see that it was largely a result of the same policy divergence. The current market scenario continues along this trend, where the interest rate gap between the ECB and the BoJ remains the key driver. This historical context gives us confidence that the trend is likely to persist in the short term. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now