The EUR\/JPY pair continues its upward trend, trading around 177.50 and marking a 0.20% increase for the day. This rally is attributed to the weakening Japanese Yen, partly due to disappointing wage data. Japan\u2019s Labour Cash Earnings for August grew by 1.5% year-on-year, a decline from July’s 4.1% and below expectations of 2.6%. Real wages also saw a decline of 1.4% in August from the previous year, marking the eighth consecutive month of real wage decreases as inflation rates continue to exceed income growth.<\/p>\n
In Japan, political dynamics add complexity, with the Liberal Democratic Party electing Sanae Takaichi as its leader, implying potential changes in economic policy direction. Her approach includes expansionary fiscal policies, which could further influence the Bank of Japan’s monetary strategies. Additionally, the start of the extraordinary Diet session has been delayed to October 20 or later, indicating challenges in renewing the coalition with the Komeito party.<\/p>\n
In Europe, political issues in France provide a constraint on EUR\/JPY movement. Former French Prime Minister S\u00e9bastien Lecornu is expected to present a proposal to President Emmanuel Macron, which might mitigate some of the political uncertainty affecting the Euro. Despite this, the Euro remains stronger compared to the Japanese Yen among major currencies, as evidenced by percentage changes in trading values.<\/p>\n
The yen’s weakness, which we saw gathering pace last year, remains a central theme for the EUR\/JPY pair. The latest data from September 2025 shows Japanese core inflation at 2.5%, but nominal wage growth is lagging at just 1.8%, continuing the trend of negative real wages. This reinforces our view that the Bank of Japan (BoJ) will be unable to meaningfully raise interest rates in the coming weeks.<\/p>\n
When we look back, the political signals from late last year were a clear sign of the BoJ’s continued dovish stance. The expansionary fiscal policy of the Takaichi government has put further pressure on the central bank to keep monetary conditions loose to support government borrowing. This fundamental backdrop makes shorting the yen an attractive strategy.<\/p>\n
On the other side, the fears surrounding French political instability have largely subsided, removing a significant headwind for the Euro. Eurozone inflation remains persistent, with the latest figures showing it at 2.8%, keeping the European Central Bank from considering rate cuts. This has solidified the significant interest rate differential between the Euro and the Yen.<\/p>\n
For derivative traders, this creates a clear opportunity in the weeks ahead. With the European Central Bank’s key rate holding at 3.5% and the Bank of Japan’s near zero, a positive carry trade remains compelling. Using long-dated call options on EUR\/JPY could be a way to profit from further upside while capping potential losses.<\/p>\n
We must remain aware of the primary risk, which is a sudden intervention by Japanese authorities to strengthen the yen, similar to what we witnessed back in 2022. Traders should consider using option spreads, like a bull call spread, to reduce the upfront premium cost. This strategy would still profit from a gradual rise in EUR\/JPY but offers some protection against a sharp, unexpected reversal.<\/p>\n
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