EUR/JPY has rebounded from early lows, edging toward 180.77, due to the lacklustre performance of the Japanese Yen. The currency remained within a familiar range since mid-November, despite rising anticipation of a Bank of Japan (BoJ) rate hike.
Euro support stems from Eurozone GDP and employment data showing progress in Q3. Eurozone GDP grew by 0.3% quarter-on-quarter, exceeding the 0.2% forecast, with an annual growth rate of 1.4%. Consumption and investment increased, with household consumption up 0.2% and investment rising 0.9%.
Eurozone Economic Indicators
Labour figures in the Eurozone are improving, with employment up 0.2% quarterly, surpassing expectations. On a yearly basis, employment rose 0.6%, consistent with previous forecasts.
The Japanese Yen is not capitalising on BoJ’s potential rate hike at the December 18-19 meeting. BoJ Governor Kazuo Ueda’s hawkish remarks have spurred speculation of policy changes, and Bloomberg reports that BoJ may lift rates if no major economic shocks occur.
Attention turns to upcoming Japanese data releases on Monday, including labour earnings and third-quarter GDP. These updates will influence expectations for BoJ’s policy decisions as the December meeting approaches.
The Eurozone’s economy appears to be on solid footing, with recent Q3 GDP and employment figures beating expectations. We’ve also seen the latest November S&P Global Composite PMI register at 51.2, marking the fourth straight month of expansion. This underlying strength suggests the Euro has reasons to stay firm against its peers in the coming weeks.
Anticipation of Bank of Japan Rate Hike
On the other side, the market is heavily anticipating a Bank of Japan rate hike at the December 18-19 meeting. We see this as a continuation of the major policy shift that began back in March 2024 when the BoJ ended its negative interest rate policy. With recent Tokyo core inflation data for November holding at 2.8%, the pressure on the central bank to act is significant.
For derivatives traders, the key observation is that the Yen is not strengthening despite these hawkish expectations, allowing EUR/JPY to hold near 180.77. This suggests a good strategy would be using call options to ride potential further upside in the pair over the next one to two weeks. The market seems hesitant to price in the full impact of a BoJ hike until it actually happens.
However, the BoJ meeting itself presents a major volatility event where we could see a sharp reversal. Implied volatility on JPY pairs will likely rise as we approach the date, making options more expensive but also more valuable for hedging. We believe purchasing put options on EUR/JPY to protect against a “sell the fact” downturn following a hawkish BoJ announcement is a prudent move.
Before that meeting, we will be watching the Japanese labor earnings and final GDP data due this coming Monday. Strong figures here would almost certainly cement expectations for a rate hike. These releases will provide the next short-term trading opportunities and shape sentiment heading into the main event.
