The EUR/JPY is currently trading around 177.50, rising after the Bank of Japan (BoJ) decided to keep its short-term interest rate target steady at 0.4%-0.5% for October. This decision follows a two-day loss period and matches market expectations.

Monetary Policy and Inflation Dynamics

The BoJ has paused its tightening cycle for the sixth consecutive meeting since raising rates by 25 basis points in January. Talks about when to resume rate hikes may start as inflation changes, but Prime Minister Sanae Takaichi’s support for a loose monetary policy could complicate things. The Japanese Yen might weaken as interest in safe-haven assets drops because of optimism about a potential US-China trade agreement. US President Donald Trump and Chinese President Xi Jinping are currently discussing various trade issues in an ongoing meeting. The market is also eager for economic data from Germany and the Eurozone, alongside the European Central Bank’s (ECB) upcoming interest rate decision. The ECB is expected to keep rates at 3.75% for the third straight meeting, as signs show economic growth and easing inflation. The BoJ’s interest rate choices are vital indicators of how the Yen will perform, based on its view of inflation and the economic outlook. This morning, October 30th, the EUR/JPY cross is pushing above 177.50, influenced by the BoJ’s decision. By keeping its interest rate target stable, the BoJ signals a continued dovish stance, making the Japanese Yen less appealing for now.

Interest Rate Gap and Trading Strategies

The ECB is anticipated to maintain its rate at 3.75% later today, which creates a notable interest rate gap of over 300 basis points. This difference encourages carry trades, where traders borrow inexpensive Yen to invest in Euros that offer higher yields. This strategy has been profitable throughout most of 2025 due to diverging central bank policies. We are closely monitoring the US-China trade talks, as positive developments there boost overall market sentiment. This optimism decreases the demand for the Yen, traditionally a safe-haven asset during uncertain times. A favorable outcome from the meeting could put more downward pressure on the Yen. Given this outlook, we suggest traders consider buying call options on EUR/JPY with strike prices above 178.00, expiring in the next four to six weeks. This approach allows for profit from upward movement while managing risk to the premium paid. For those with a neutral to slightly bullish perspective, selling out-of-the-money put options can also be a good way to earn premium, assuming the pair won’t sharply reverse. In the coming days, we will focus on unemployment and GDP data from Germany and the Eurozone. The flash estimate for Eurozone Q3 GDP showed a modest growth of 0.2%, while headline inflation eased to 2.7% in October, reinforcing the idea of economic strength. However, any major miss in upcoming data could challenge this view and lead to a brief pullback. Create your live VT Markets account and start trading now.

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