The EUR/JPY rate has climbed to 184.40, showing a 0.40% rise. This increase comes as confidence in the Eurozone grows, while political uncertainty in Japan weakens the Yen. The Sentix Investor Confidence Index for the Eurozone is now at -1.8, pointing to a better economic outlook, though this optimism hasn’t yet boosted the Euro significantly.

Political Uncertainty In Japan

There are reports that Japanese Prime Minister Sanae Takaichi may dissolve the House of Representatives in January, which could lead to snap elections in February. This potential move adds more uncertainty to Japan’s political situation. Additionally, the Bank of Japan’s plans for monetary policy are unclear. They hint at possible interest rate hikes, but without specific timing, this does not support the Yen effectively. These factors generally lead to a stronger Euro against the Yen, even in the absence of strong bullish indicators. The currency heatmap shows that the Euro is performing well against the Japanese Yen, with a 0.41% increase, while the Yen is losing value against most other major currencies. With these differing trends, there is an opportunity for the EUR/JPY to rise from its current level of 184.40. The combination of growing confidence in the Eurozone and fresh political uncertainty in Japan sets a positive tone for this upward trend. Traders in derivatives should consider positioning for continued Yen weakness against the Euro. The rise in the Sentix Investor Confidence to -1.8 is notable, especially as Eurozone unemployment dropped to a multi-year low of 6.3% in the last quarter of 2025. This economic strength, along with stable policies from the European Central Bank, provides a strong foundation for the Euro. The market currently seems to be undervaluing this underlying strength.

Yen Weakness Ahead

On the flip side, the potential for snap elections in Japan introduces familiar risks that could weigh on the Yen. We recall that the Yen dropped over 15% against the Euro during 2025 while we awaited a clear shift in the Bank of Japan’s policies. This new political uncertainty adds to the reasons to be cautious about the Yen’s strength. The Bank of Japan’s unclear timeline for interest rate hikes is a crucial issue. While Governor Ueda has mentioned tightening, the absence of a solid schedule has consistently let down those hoping for a stronger Yen, a trend we’ve noted for much of last year. History suggests that until the Bank of Japan takes decisive action, the Yen is likely to continue to weaken. Therefore, buying EUR/JPY call options set to expire in the next two to three months seems like a smart strategy. This method allows traders to benefit from the expected rise while managing their risks. The premium paid for these options would be the maximum loss if the political situation in Japan stabilizes or if the Bank of Japan unexpectedly adopts a more aggressive stance. Create your live VT Markets account and start trading now.

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