EUR/JPY is currently trading around 176.30, down 0.70% today. This drop is due to the Japanese Yen strengthening after comments from Bank of Japan (BoJ) Governor Kazuo Ueda, who hinted at a possible rate increase by December or January. These comments suggest a move away from Japan’s long-standing loose monetary policy. The exact timing of a rate hike is still unclear, as Japan’s Prime Minister Sanae Takaichi is planning strong fiscal measures. Finance Minister Satsuki Katayama noted that her focus has shifted to currency stability, and she is no longer evaluating the Yen’s fair value in the 120-130 range against the dollar.

European Central Bank Holds Steady

In Europe, the European Central Bank (ECB) has kept interest rates the same for three meetings in a row. Inflation is near the 2% target, and there are signs of improved business sentiment, suggesting the ECB may pause on rate changes for a while. Comments from important European central bankers indicate a balance between inflation and growth risks. This suggests that the ECB is likely to maintain its current approach. The Euro is performing well against the New Zealand Dollar and shows mixed changes against other major currencies. The heat map shows the Euro increasing by 0.85% against the USD but decreasing by 0.67% against the JPY. The drop in EUR/JPY reflects global monetary policy changes, affecting how currencies are valued. There’s a clear divide in central bank policies, favoring a stronger Yen against the Euro. The BoJ is hinting at a potential rate hike soon, while the ECB seems to be holding steady. This difference indicates that we may see further declines in the EUR/JPY pair from its current position around 176.30.

Market Volatility And Historical Context

This perspective is backed by recent inflation data. Japan’s core Consumer Price Index (CPI) for October 2025 was 2.8%, staying above the BoJ’s target for over a year and a half. In contrast, the Eurozone’s latest flash inflation figure came in at 2.1%, giving the ECB plenty of leeway to wait. This data strengthens the odds of the Yen performing better than the Euro in the coming weeks. For traders in derivatives, we can anticipate a significant increase in implied volatility for Yen pairs. In the options market, the 1-month implied volatility for EUR/JPY has risen from 8% to 12% in the past week, reflecting the growing uncertainty. Buying put options on EUR/JPY with expiries in January 2026 may be a prudent way to prepare for a decline while managing risk. It’s also important to recall how markets reacted the last time the BoJ initiated a tightening cycle, particularly around 2006-2007. The unwinding of carry trades led to sharp and sudden moves in Yen pairs. Although history may not repeat exactly, it serves as a reminder that the beginning of a policy shift is often a time of high volatility. The biggest risk to this view is political pressure from Japan’s new government. Their fiscal stimulus plans could cause the BoJ to be more cautious. We need to monitor communications from both the government and the central bank closely. If there are any signs that the BoJ may delay a rate hike, we could see a quick rebound in EUR/JPY. Create your live VT Markets account and start trading now.

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