The EUR/JPY exchange rate is rising. The Euro is strengthening because of its resilience, while the Yen is weaken due to the Bank of Japan’s cautious position. Currently trading at around 178.30, the Euro’s rise is linked to broader market sentiment and careful Japanese monetary policies. Germany’s ZEW Economic Sentiment Index fell to 38.5 in November, below the expected 40.0, showing ongoing market pessimism. The Current Situation Index did improve slightly to -78.7 but was below the predicted -77.5. However, the overall mood in the Eurozone is better, which is benefiting the Euro.

ECB Comments and Yen Pressure

European Central Bank official Martin Kocher’s remarks have supported the Euro, indicating that the ECB’s current approach does not require immediate changes. In Japan, economic adviser Takuji Aida’s comments put pressure on the Yen, suggesting that interest rates are unlikely to rise until possibly January, depending on future economic assessments. Markets are now looking to Japan’s Producer Price Index data for more insights on the Bank of Japan’s policies. For now, a greater appetite for risk is reducing demand for the Yen, allowing the EUR/JPY to stay above 178.00. The Euro is also performing well against the British Pound and showing mixed results against other currencies. Given the situation, the clear difference in policies between the steady European Central Bank and the indecisive Bank of Japan presents an opportunity. The Euro remains strong as inflation is still challenging to control, with the latest Eurozone HICP data for October 2025 at 2.4%, above the ECB’s target. Thus, we recommend strategies to capitalize on the expected rise in the EUR/JPY exchange rate. The weakness of the Japanese Yen is expected to continue in the coming weeks. Recent Q3 2025 data revealed that Japanese wage growth was only 1.1%, falling short of expectations and giving the Bank of Japan little reason to hurry with a rate hike. We expect the Producer Price Index data due this Friday will reinforce the absence of inflationary pressure, pushing any thoughts of policy tightening deeper into 2026.

Strategies and Risks

In light of this outlook, we believe that buying call options on EUR/JPY is a smart way to benefit from the expected upward trend towards the 180.00 level. The one-month implied volatility for EUR/JPY is around 8.5%, which is reasonable. This means options premiums are fairly priced, providing a cost-effective way to tap into potential gains. The main risk to this strategy would be an unexpected hawkish statement from Japanese officials, but given the weak domestic data, this seems unlikely. The current situation is reminiscent of the carry trade environment we saw in the mid-2000s, where borrowing in a low-interest-rate currency like the Yen to invest in higher-yielding currencies was common. This historical context suggests that the upward trend in EUR/JPY may continue as long as the interest rate difference remains. Create your live VT Markets account and start trading now.

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