The EUR/JPY pair is around 183.00 amid rising worries about Japan’s financial situation. Japan’s Prime Minister, Sanae Takaichi, is advocating for active fiscal policies to boost economic growth, which contrasts with strict measures that might hinder progress. After gaining 0.51% last session, EUR/JPY is trading at about 182.90 during Asian hours. The Japanese Yen faces pressure from concerns over the country’s financial outlook.

Fiscal Policy And Economic Growth

Takaichi highlights the importance of sustainable fiscal policies and economic growth driven by higher corporate profits and wages. The Yen could strengthen if the Bank of Japan raises its policy rate by 25 basis points to 0.75% due to surging inflation. Market watchers are keen on comments from BoJ Governor Kazuo Ueda for guidance on future policies. There’s a possibility of rate hikes up to 1% by July. Meanwhile, the Euro has gained strength as Eurozone inflation eases, indicating less need for action from the European Central Bank. The upcoming ECB meeting in December is expected to maintain current policies, with President Christine Lagarde likely to keep rates unchanged into next year. The Bank of Japan plans to move away from ultra-loose monetary policies starting in 2024, as inflation surpasses its 2% target and salary prospects improve. Previous policies led to a decline in the Yen, but changes in 2024 aim to stabilize it.

Bank Of Japan Rate Decision

The Bank of Japan’s rate decision is expected tomorrow, with a 25 basis point increase to 0.75% already reflected in market prices. Attention will be on Governor Ueda’s guidance, which will influence the Yen’s direction in the weeks ahead. Any hint of a pause or dovish remarks could weaken the Yen, pushing EUR/JPY higher. Recent data supports this view. Japan’s Core CPI for November 2025 was reported at 2.7%, validating the BoJ’s decision while also showcasing inflation pressures from the government’s spending. In contrast, Eurozone HICP inflation for November 2025 was at 2.3%, allowing the ECB to keep rates steady. As a result, many traders may be preparing for a “sell the fact” scenario on the Yen. Activity in short-term EUR/JPY put options indicates a potential profit if Governor Ueda offers a surprisingly hawkish tone, causing the JPY to appreciate sharply. This strategy suggests the BoJ will want to take a strong stance against the government’s spending plans. However, the ongoing trend of Yen weakness due to fiscal concerns is strong. Traders expecting a dovish outcome from the BoJ are likely buying EUR/JPY call options, betting that the rate hike might be a “one and done” scenario, possibly pushing the pair above 183.00. In the broader options market, implied volatility for EUR/JPY has risen ahead of the meeting, indicating uncertainty. This suggests that strategies like straddles are being used to capitalize on any significant price movement following the event. This approach avoids predicting direction but bets on a substantial post-meeting shift. In the upcoming weeks, the interest rate differential will be crucial. Even with a hike to 0.75%, Japan’s rates remain significantly lower than the ECB’s steady 3.75% after recent cuts. This considerable gap will continue making it appealing to sell Yen to buy Euros. Create your live VT Markets account and start trading now.

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