The EUR/JPY currency pair is currently around 183.50, even though Eurozone manufacturing PMI data shows signs of improvement. This positive news is being overshadowed by risk aversion affecting the Euro and a weakening Yen. Japanese Prime Minister Sanae Takaichi has noted that a weaker Yen benefits Japanese exporters. In January, Eurozone manufacturing activity reached an index of 49.5, surpassing the predicted 49.4 and improving from December’s 48.8, according to the HCOB PMI report. In Germany, manufacturing PMI increased to 49.1, higher than the expected 48.7. Additionally, retail sales rose more than anticipated in December, which adds to a positive economic sentiment in the Eurozone.

Stance on Weaker Yen

Prime Minister Takaichi has supported a weaker Yen, which contrasts with Japan’s finance minister who wants to prevent further depreciation. There are reports that Takaichi may succeed in upcoming elections, raising concerns about her approach to economic policies that could strain Japan’s finances. The Purchasing Managers Index (PMI) by S&P Global and HCOB measures manufacturing business activity and serves as an indicator for GDP, industrial output, employment, and inflation trends. A PMI above 50 suggests expansion, which typically boosts the Euro, while a reading below 50 indicates contraction, which may weaken it. The Eurozone’s reading of 49.5 was slightly better than expectations and past figures. In early 2025, the EUR/JPY pair was uncertain at 183.50. We saw positive signs from Eurozone manufacturing data, but the Japanese government’s support for a weaker yen created conflict. This policy divide has been a major theme for the trade over the past year. As of February 2nd, 2026, this split has only grown, pushing the pair closer to 195.00. The latest HCOB Manufacturing PMI data for the Eurozone, released last week, was 50.8, indicating growth after being below the 50.0 mark for over a year. This signals a fundamental recovery that the market can no longer overlook, providing strong support for the Euro.

Derivative Trading Strategies

Meanwhile, the Bank of Japan has cautiously ended its negative interest rate policy in the fourth quarter of 2025, but its guidance remains very dovish compared to the European Central Bank. The interest rate difference still heavily favors holding Euros over Yen, making it a tempting option for carry trades. This suggests that the easiest path for EUR/JPY continues to be upward. For derivative traders, this situation favors strategies that benefit from steady price increases. Buying call options with strikes around 196.00 or 197.00 in the coming weeks makes sense to capture further gains. A more budget-friendly approach could be a bullish call spread, such as buying a March 196.00 call and selling a March 200.00 call, targeting the psychologically significant 200.00 level. However, we should be alert to the risk of intervention from Japanese authorities. Such actions have historically occurred when currency movements are too rapid. As we near the 200.00 mark, we can expect more verbal warnings, which could bring short-term volatility. Cautious traders might want to consider buying inexpensive, out-of-the-money put options as protection against a sudden reversal due to intervention. Create your live VT Markets account and start trading now.

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