EUR/JPY rose for a second straight session and traded near 181.60 in Asian hours on Monday. The move followed weakness in the Japanese yen after Japan’s Q4 2025 GDP figures came in below forecasts.
Japan’s GDP grew 0.1% quarter-on-quarter in Q4, after a 0.7% fall in Q3. Markets had expected a 0.4% rise. On an annualised basis, the economy expanded 0.2%, versus a 1.6% forecast, after a 2.3% decline in Q3.
Consumer spending rose 0.1% in Q4. Later today, attention turns to seasonally adjusted Eurozone Industrial Production data for December.
The yen could still find support from expectations around Prime Minister Sanae Takaichi’s fiscal expansion plans, including higher spending and targeted tax cuts. Her election win also reduced political uncertainty and strengthened backing for these policies.
The euro also gained after the European Central Bank showed limited concern about the currency’s recent rise. ECB President Christine Lagarde said the euro area inflation outlook is in a “good place” and cautioned against overreacting to short-term or volatile data.
EUR/JPY is pushing higher toward 181.60, largely because Japan’s latest data was very weak. The economy grew just 0.2% on an annualised basis in the final quarter of 2025, well below the 1.6% that markets expected. While Japan narrowly avoided a technical recession, the report gives the Bank of Japan little reason to raise interest rates soon.
A widening gap between central bank outlooks remains a key driver for this pair. After the GDP report, interest rate markets are pricing only a 15% chance of a Bank of Japan hike by mid-year, down from 40% just last month. In contrast, the European Central Bank appears comfortable with its stance, and traders do not expect a full rate cut until September 2026 at the earliest.
This policy gap makes buying EUR/JPY call options an appealing strategy for the coming weeks. It allows participation in a potential uptrend while limiting risk to the premium paid. One approach is to consider strikes above the current price with expirations in late March or April, giving the trade time to play out.
A similar setup played out from 2022 to 2024. During that period, the ECB raised rates while the Bank of Japan stayed on hold, and EUR/JPY rallied more than 30%. Today’s weak Japanese data creates a comparable backdrop for further gains.
Key risks could still reverse the move. The biggest wildcard is Prime Minister Takaichi’s fiscal spending plans. If they start clearly lifting growth, the yen could strengthen quickly. Eurozone Industrial Production data due later today also matters, since a weaker-than-expected reading could temporarily slow the euro’s momentum.
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