The Yen is currently the weakest currency among the G8 nations. Efforts to push EUR/JPY below 182.00 have not worked. Instead, the pair is testing its highest level in over 30 years at 182.60, amid tough conditions for Japan’s economy. Japan’s economic outlook looks grim, following a sharp drop in GDP and financial concerns from a USD 137 million spending package. Even though a rate hike by the Bank of Japan to 0.75% is expected next week, uncertainty lingers since this rate is still low compared to hikes anticipated from other central banks.

Economic Indicators in the Eurozone

In the Eurozone, recent reports show an increase in German Industrial Production and a wider trade balance. The Eurozone Sentix Investors’ Confidence Index rose, though it remains negative. The European Central Bank is not expected to change its monetary policy at the next meeting. This week, the Japanese Yen weakened the most against the Canadian Dollar. A heat map displays the changes in major currencies, making it easy to compare their percentage shifts. Guillermo Alcala, a financial news editor, shares expert insights on current market trends in the Forex industry. He has contributed to various Forex-related firms. The differences in central bank policies are driving EUR/JPY toward levels not seen in decades, currently testing the 182.60 mark. Recent data from the Commodity Futures Trading Commission reveals net short positions on the Yen over 120,000 contracts, indicating a strong market sentiment against Japan’s currency.

Japanese Yen Fundamentals and Risks

The Yen’s weakness stems from fundamental data; Monday’s final Q3 GDP revision confirmed a 1.2% contraction. Even with an expected 25 basis point hike from the Bank of Japan next week, raising the rate to 0.75%, the overall situation remains unchanged. November’s Tokyo Core CPI, an important inflation indicator, stood at 2.5%, suggesting inflation isn’t escalating enough to prompt a stronger policy response in 2026. Conversely, the Euro benefits from a more hawkish European Central Bank, dealing with persistent inflation, as shown by the latest November flash estimate of 2.8%. ECB member Schnabel’s comments this week indicate a higher likelihood of a rate hike than a cut, contrasting sharply with the Bank of Japan’s uncertain direction. With central bank meetings approaching next week, we anticipate increased implied volatility, making long options strategies appealing for managing risk. Purchasing EUR/JPY call options with a strike price above the current 182.60 resistance could provide a low-risk way to profit from a potential breakout following the policy announcements. We’re looking at options that expire in late January or February 2026 to give enough time for trends to materialize. It’s also essential to consider the risk of a reversal. The extreme short positioning in the Yen could lead to a rapid correction in response to unexpected news from the Bank of Japan. Historical instances of one-sided positioning, like in 2022, show that quick rebounds can happen unexpectedly. Thus, we might consider using put options to hedge long exposure or establish bearish put spreads to bet on a pullback from these peaks. Create your live VT Markets account and start trading now.

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