EUR/JPY has bounced back from early lows, now approaching 180.77, largely due to the weak performance of the Japanese Yen. The currency has stayed within a familiar range since mid-November, even as anticipation builds for a Bank of Japan (BoJ) rate hike. Support for the Euro comes from positive Eurozone GDP and employment data for Q3. Eurozone GDP grew by 0.3% compared to the previous quarter, surpassing the 0.2% forecast, and showing an annual growth rate of 1.4%. Both consumption and investment saw increases, with household consumption up by 0.2% and investment rising by 0.9%.

Eurozone Economic Indicators

Employment figures in the Eurozone are improving. Employment rose by 0.2% quarterly, exceeding expectations. Yearly employment increased by 0.6%, aligning with forecasts. Meanwhile, the Japanese Yen hasn’t taken advantage of the anticipated BoJ rate hike at the December 18-19 meeting. BoJ Governor Kazuo Ueda’s hawkish comments have raised speculation about a policy shift. Bloomberg reports that the BoJ may increase rates if the economy remains stable. Looking ahead, attention will be on Japanese data releases this Monday, including labor earnings and third-quarter GDP. These updates will shape expectations for the BoJ’s policy decisions as the December meeting approaches. The Eurozone economy remains solid, with recent Q3 GDP and employment data surpassing expectations. The latest November S&P Global Composite PMI stands at 51.2, indicating expansion for the fourth consecutive month. This underlying strength suggests the Euro should remain stable against other currencies in the weeks ahead.

Anticipation of Bank of Japan Rate Hike

On the flip side, the market is keenly awaiting a Bank of Japan rate hike at the December 18-19 meeting. This would mark a continuation of the major policy shift that started in March 2024 when the BoJ ended its negative interest rate policy. Recent Tokyo core inflation data for November remains at 2.8%, intensifying pressure on the central bank to act. For derivatives traders, it’s significant that the Yen is not strengthening amid these hawkish expectations, allowing EUR/JPY to hover around 180.77. A good strategy might be to use call options to capitalize on potential gains in the pair over the next one to two weeks, as the market seems reluctant to fully incorporate the potential impact of a BoJ hike until it materializes. However, the BoJ meeting itself could trigger significant market volatility, possibly leading to a sharp reversal. Implied volatility on JPY pairs is likely to increase as the meeting date approaches, making options pricier yet more valuable for hedging. Buying put options on EUR/JPY could be a wise move to guard against a possible downturn after a hawkish BoJ announcement. Before the meeting, we will closely monitor Japanese labor earnings and final GDP data due this Monday. Strong results would likely solidify expectations for a rate hike. These releases will offer short-term trading opportunities and shape market sentiment heading into the critical event. Create your live VT Markets account and start trading now.

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