EUR/JPY rose for a second session and traded near 181.60 in Asian hours on Monday. The move followed weakness in the Japanese yen after Japan’s GDP figures for Q4 2025 came in below forecasts.
Japan’s GDP grew by 0.1% quarter-on-quarter in Q4, after a 0.7% fall in Q3, versus expectations for a 0.4% rise. On an annualised basis, the economy expanded 0.2%, compared with a 1.6% forecast and a 2.3% decline in Q3.
Eurozone Data In Focus
Consumer spending increased by 0.1% in Q4. Attention later in the day turns to seasonally adjusted Eurozone Industrial Production data for December.
The yen may get support from expectations around Prime Minister Sanae Takaichi’s fiscal expansion plans, including higher spending and targeted tax cuts. Her election win reduced political uncertainty and secured backing for these policies.
The euro also gained as the European Central Bank signalled limited concern about the currency’s recent rise. ECB President Christine Lagarde said the euro area inflation outlook is in a “good place” and warned against reacting too strongly to short-term or volatile data.
The EUR/JPY is pushing higher toward 181.60, driven by very weak economic data out of Japan. The economy grew just 0.2% on an annualized basis in the final quarter of 2025, far short of the 1.6% growth we were all expecting. This performance, which narrowly avoided a technical recession, gives the Bank of Japan very little reason to consider raising interest rates anytime soon.
Central Bank Outlook Divergence
We see a growing gap in central bank outlooks, which is key for this currency pair. Following the weak GDP report, interest rate markets are now pricing in only a 15% chance of a Bank of Japan rate hike by the middle of this year, down from 40% just last month. Meanwhile, the European Central Bank appears comfortable with its position, and traders do not see a full interest rate cut happening until September 2026 at the earliest.
This policy divergence makes buying call options on EUR/JPY an attractive strategy for the coming weeks. This approach lets us benefit from the expected upward trend while clearly defining our maximum risk to the premium we pay. We should look at strikes above the current price with expirations in late March or April to give the trade time to develop.
We have seen this exact scenario play out before, specifically from 2022 through 2024. During that period, the ECB was hiking rates while the Bank of Japan stood still, leading to a massive rally of over 30% in the EUR/JPY. The current weak Japanese data provides the same kind of foundation for a continued move higher.
Still, we need to watch for risks that could reverse the trend. The main wildcard is Prime Minister Takaichi’s planned fiscal spending, as any evidence it is successfully boosting the economy could rapidly strengthen the Yen. We must also monitor the Eurozone Industrial Production figures due later today, as a surprisingly poor number could put a temporary brake on the Euro’s momentum.
