EUR/JPY is stable around 181.90 during the Asian session after experiencing two days of losses. This follows a lower-than-expected adjusted merchandise trade balance surplus for Japan in November, recorded at JPY 62.9 billion, compared to October’s JPY 74.0 billion.
Despite this, Japan’s export data for November showed a 6.1% rise, surpassing the 4.8% forecast and reaching the fastest growth in nine months. Core machinery orders also showed strength, increasing by 7%, while imports rose 1.3% year-on-year, albeit below the forecasted 2.5%.
Bank Of Japan Policy Outlook
Traders remain cautious ahead of the Bank of Japan’s policy update. The BoJ meeting concludes on Friday, with focus on guidance for the policy path until 2026, as inflation targets become more attainable.
The Euro might regain strength as anticipation for additional ECB easing in 2026 diminishes after recent signals from officials. Key data points include Germany’s IFO Business Survey and Eurozone Core Harmonised Index of Consumer Prices (HICP).
The Euro is the currency for 20 EU countries and extensively traded internationally. The ECB, responsible for the Eurozone’s monetary policy, influences the Euro’s value through interest rate adjustments, as higher rates typically strengthen the currency.
With EUR/JPY trading below 182.00, we see the market caught between two opposing forces. The Bank of Japan (BoJ) is widely expected to act this week, but the European Central Bank (ECB) is also signaling a more cautious approach to rate cuts in 2026. This creates significant uncertainty that we can use to our advantage.
Expected Market Reactions
The main event is the BoJ policy meeting concluding this Friday, December 19th. The strong Japanese export and machinery order data for November have fueled expectations for a rate hike, a move that would strengthen the Yen and push EUR/JPY lower. We see this reflected in the overnight interest rate swaps market, which is now pricing in an over 70% probability of a 10-basis-point hike by the BoJ this week.
Japan’s nationwide core CPI for November recently printed at 2.8%, marking the 20th consecutive month above the BoJ’s 2% target. This persistent inflation, combined with the strong economic data, puts immense pressure on Governor Ueda to finally deliver on his hawkish hints. We remember the market reaction when the BoJ ended its negative interest rate policy back in March 2024; the initial yen strength was significant.
On the other side, the Euro is finding support from ECB officials who are pushing back against market expectations for aggressive rate cuts next year. We will be closely watching the German IFO Business Survey and Eurozone HICP inflation data due later today. Current forecasts suggest the German IFO will show a slight improvement to 88.1, while Eurozone core inflation is expected to remain sticky at 2.4%, reinforcing the ECB’s cautious stance.
For derivative traders, the sharp rise in expected volatility is the key opportunity. Implied volatility for one-week EUR/JPY options has surged to over 15%, a level not seen since the second quarter of 2025. This suggests that option strategies like long straddles or strangles, which profit from a large price move in either direction, could be well-suited for the upcoming BoJ decision.
If we believe the BoJ will deliver a hawkish surprise, buying EUR/JPY put options with a late December or early January 2026 expiry would be a direct way to position for a drop below 180.00. Conversely, if we anticipate a dovish hold, which would go against the grain, call options could offer leveraged upside. The key is to position for a decisive breakout from the current tight range before Friday’s announcement.
