German Inflation Data

Germany’s inflation data shows stable price trends, with a Harmonized Index of Consumer Prices (HICP) rising by 0.3% from September to October. The annual inflation rate decreased to 2.3%, slightly lower than the previous month. European Central Bank President Christine Lagarde mentioned that the cycle of cutting rates is mostly finished, though there are still worries about rising service costs. In Japan, Prime Minister Sanae Takaichi is backing policies to encourage economic growth. Even though inflation is edging closer to the 2% target, the Bank of Japan is sticking to its current policy. The weaker Yen has led Finance Minister Satsuki Katayama to keep a close watch on currency changes, hinting at possible government action. The differences between the European Central Bank and the Bank of Japan are driving the EUR/JPY exchange rate higher, and this trend is likely to continue. With the ECB signaling an end to rate cuts, the interest rate gap favoring the euro is significant—over 275 basis points based on money market rates for November 2025. This situation suggests that following the uptrend is currently the safest approach. In the coming weeks, consider buying call options during small dips to benefit from the ongoing upward momentum. Positive market sentiment, supported by stability in the US, is reducing the Yen’s appeal as a safe-haven currency and boosting carry trades. Since Japan’s new government seems committed to additional stimulus, there are few domestic factors that could reverse the Yen’s decline.

Primary Risk Of Intervention

However, a key risk is a sudden intervention by Japanese authorities, which we must take seriously. The Finance Minister has been issuing more frequent verbal warnings, reminding us of the sharp market changes back in September and October 2022 when the Ministry of Finance took action. This makes holding long positions very risky. This uncertainty is reflected in the options market, where one-month implied volatility for EUR/JPY has increased to 12.5% this week, compared to an average of 9% over the past quarter. Therefore, any long positions should be protected by purchasing out-of-the-money puts to guard against a sudden drop caused by intervention. These puts provide insurance against the Yen gaining several hundred pips in a single day. Create your live VT Markets account and start trading now.

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