The EUR/JPY pair is on the rise, currently trading around 177.50, up by 0.20% today. This increase is mainly due to the weakening Japanese Yen, which is affected by disappointing wage data. Japan’s Labour Cash Earnings for August rose by only 1.5% compared to last year, down from July’s 4.1% and lower than the expected 2.6%. Real wages also fell by 1.4% in August, marking the eighth consecutive month of declines as inflation outpaces income growth. Political changes in Japan add another layer of complexity. The Liberal Democratic Party has elected Sanae Takaichi as its leader, suggesting shifts in economic policy. Her plans include expansionary fiscal policies, which may affect the Bank of Japan’s monetary strategies. Furthermore, the extraordinary Diet session has been postponed to October 20 or later, indicating difficulties in renewing the coalition with the Komeito party.

Political Issues in France

In Europe, political issues in France are also affecting the EUR/JPY pair. Former French Prime Minister Sébastien Lecornu is set to present a proposal to President Emmanuel Macron that could ease some of the political uncertainty surrounding the Euro. Nevertheless, the Euro continues to perform better than the Japanese Yen against other major currencies. The yen’s ongoing weakness, which began last year, is a key factor for the EUR/JPY pair. The latest data from September 2025 shows Japanese core inflation at 2.5%, while nominal wage growth stagnates at just 1.8%. This trend of negative real wages suggests that the Bank of Japan (BoJ) is unlikely to raise interest rates anytime soon. Looking back, political signals from late last year indicated the BoJ would maintain a dovish stance. The expansionary fiscal policy under Takaichi’s leadership pressures the central bank to keep monetary policy loose to support government borrowing. This backdrop makes shorting the yen an appealing strategy.

Euro Concerns with French Political Instability

On the flip side, concerns about French political instability have eased, lifting a major burden from the Euro. Eurozone inflation remains strong, currently at 2.8%, which prevents the European Central Bank from considering rate cuts. This situation has created a significant interest rate gap between the Euro and the Yen. For derivative traders, this presents a clear opportunity in the coming weeks. With the European Central Bank’s key rate at 3.5% and the Bank of Japan near zero, a positive carry trade looks attractive. Using long-dated call options on EUR/JPY could allow for profit from potential gains while limiting losses. However, it’s important to watch for the main risk: sudden interventions by Japanese authorities to strengthen the yen, similar to actions taken in 2022. Traders might consider option spreads, like a bull call spread, to lower the upfront premium cost. This strategy could still benefit from a slow increase in EUR/JPY while providing protection against a sharp, unexpected downturn. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now