European Central Bank Policy Update
The European Central Bank kept interest rates unchanged in December and suggested they would remain steady. A 25 bps interest rate cut by the ECB is priced in for February 2026, currently below 10%.
In technical analysis, EUR/JPY’s uptrend is supported by the 100-day EMA at 177.80. The currency trades near the upper Bollinger Band with positive RSI momentum at 61.05 without overbought conditions.
Key factors for the Japanese Yen include the Bank of Japan’s policy, bond yield differentials, and risk sentiment. The BoJ’s ultra-loose monetary policy led to a Yen depreciation, but recent policy shifts provide some support. The Yen often acts as a safe-haven investment, gaining during market stress.
The EUR/JPY cross is holding steady near 183.80, and we see continued positive momentum heading into the new year. The key level to watch on the upside is the resistance at 185.25. A decisive break above this point in early January could signal the next leg up for the pair.
Options Trading Strategies
The Bank of Japan’s slow move away from its ultra-loose policy is the main story here, capping any real strength in the Yen. We saw core inflation in Japan for November 2025 dip to 2.5%, which, while still above the 2% target, supports the BoJ’s cautious approach. This gradual pace disappoints traders looking for a more aggressive tightening cycle.
On the other side, the European Central Bank seems content to hold interest rates steady for now. Recent flash estimates for December 2025 showed Eurozone inflation at 2.9%, giving the ECB little reason to signal imminent rate cuts. This policy difference between a hesitant BoJ and a steady ECB is what continues to fuel the uptrend.
For derivative traders, this suggests that buying call options with a strike price above 185.25 could be a viable strategy to capture a potential breakout in the coming weeks. Alternatively, selling out-of-the-money put options could be considered to collect premium, betting that support around 182.95 will hold firm. Low holiday trading volume might create some choppiness, but the underlying bullish trend appears intact.
We must remember the bigger picture; the BoJ only ended its landmark negative interest rate policy back in March of 2024. The market perceives the current tightening path as historically gradual, which has been a primary driver of Yen weakness for over a year. This long-term context supports the view that pullbacks are likely to be buying opportunities.
