Bank Of Japan Policy Outlook
BoJ Governor Kazuo Ueda said underlying inflation is moving towards the 2% target and that policy will be guided to support stable price growth. Markets still expect no change this week, while allowing for possible tightening later. The Euro has been supported by lower Oil prices, which can help the Eurozone due to its reliance on energy imports. Crude eased after tankers crossed the Strait of Hormuz safely and major economies signalled possible strategic reserve releases. The European Central Bank is expected to keep rates unchanged on Thursday, with the deposit rate at 2% and the main refinancing rate at 2.15%. Money markets still price in a possible rate rise by mid-year amid inflation risks linked to geopolitical tensions. Given the policy divergence, we see the path of least resistance for EUR/JPY as upward in the coming weeks. The European Central Bank’s potential for a mid-year rate hike is gaining traction, especially as this week’s ZEW Economic Sentiment survey for Germany showed a surprising jump to 15.2, its highest level in over a year. This underlying strength in the Eurozone’s largest economy supports the single currency.Options Strategy And Volatility
Traders should consider buying EUR/JPY call options with expirations in May or June 2026 to capture this expected upward move. Implied volatility for one-month EUR/JPY options has risen to 12.5%, indicating the market is pricing in larger price swings around the upcoming central bank meetings this Thursday. Using options provides upside exposure while defining risk, which is crucial given the current environment. The main risk to this view is direct intervention from Japanese authorities. We remember how the Ministry of Finance stepped in with verbal warnings during the third quarter of 2025 when the pair pushed towards the 185 level, which suggests a soft ceiling may exist. Therefore, setting strike prices for calls below that historically sensitive zone, perhaps around 185.00, could be a prudent strategy. The Bank of Japan’s cautious stance is understandable when we look at the data. Japan’s latest national Core CPI print came in at 1.8%, still shy of the central bank’s 2% goal and justifying their decision to hold rates at 0.75%. This contrasts sharply with the Eurozone, where policymakers remain worried about inflation becoming entrenched. Furthermore, the recent drop in energy costs provides a significant tailwind for the Euro. Brent crude has fallen over 8% in the last two weeks, settling near $78 a barrel, which eases pressure on the trade balance of major European importers. This fundamental support for the Euro strengthens the case for a higher EUR/JPY exchange rate. Create your live VT Markets account and start trading now.
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