EUR/JPY fell below 177.00 and was around 176.90 during Asian trading hours on Wednesday. This decline comes as traders remain cautious before the Bank of Japan’s (BoJ) policy decision. The Yen has gained strength, as many expect the BoJ to keep interest rates steady while hinting at possible future hikes. US Treasury Secretary Scott Bessent has recommended that Japan should allow more flexibility with interest rates and move away from a weak Yen supported by low borrowing costs. Meanwhile, US President Donald Trump met with Japanese Prime Minister Sanae Takaichi to strengthen US-Japan relations through new trade deals.

BoJ Policy Decisions

Japanese Chief Cabinet Secretary Minoru Kihara stated that the BoJ is expected to align its policies with the inflation target, ensuring closely coordinated efforts with the government. In the Eurozone, median consumer inflation expectations dropped to 2.7% for September 2025, while unemployment expectations remained stable at 10.7%, indicating a steady labor market. The BoJ, Japan’s central bank, focuses on price stability and aims for a 2% inflation target. Since 2013, it has adopted an ultra-loose monetary policy through Quantitative and Qualitative Easing (QQE). However, by March 2024, rising inflation and a weak Yen led the BoJ to reconsider this stance, indicating possible future changes in monetary policy. With the Bank of Japan’s decision just around the corner, increased caution has helped boost the Yen. The market seems to be preparing for a more hawkish message, even if interest rates stay the same this week. The implied volatility on one-week EUR/JPY options has surged, suggesting that traders are anticipating a significant move following the announcement. The policy shift that started in March 2024 continues to gain momentum. The BoJ raised rates slightly for the first time in July 2025, and with pressure from the US, there’s increased motivation for further tightening. This represents a significant departure from the ultra-loose policies of the past decade.

Trading Strategies Amid Policy Changes

For derivative traders, considering buying puts on EUR/JPY might be a smart strategy to capitalize on ongoing Yen strength. A more balanced approach would involve purchasing straddles, betting on a rise in volatility regardless of the direction the currency pair takes after the BoJ’s announcement. This strategy protects against any unexpected dovish outcome while allowing for profit from significant price movements. On the opposite side, the outlook for inflation in the Eurozone is becoming less concerning for the European Central Bank (ECB). The ECB has maintained its main interest rate steady for the last three meetings, indicating a clear pause in its tightening policy. This difference creates downward pressure on EUR/JPY, as one central bank considers rate hikes while the other is on hold. Remember the extreme weakness of the Yen in 2022 and 2023, which was largely due to widening interest rate gaps. We’re now seeing the gradual reversal of that trend, particularly as Japan’s core inflation has stayed above the 2% target for 18 consecutive months. This ongoing inflation supports the case for a stronger Yen in the coming weeks. Create your live VT Markets account and start trading now.

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