Insights 
VT 
The EUR/JPY remains steady above 178.00, close to the record high reached on Thursday. Spot prices trade around 178.15, experiencing slight stability with expectations of strong monthly gains.
The Japanese Yen received a temporary boost from stronger consumer inflation figures in Tokyo. However, this momentum was short-lived due to uncertain timing of the next Bank of Japan rate hike and new PM Sanae Takaichi’s plans for aggressive fiscal spending, limiting the JPY’s upward potential.
European Central Bank Policy
Meanwhile, the European Central Bank kept interest rates unchanged at 2% for the third consecutive meeting. The ECB maintains that the Eurozone’s economy is resilient and inflation is near the 2% target, supporting the EUR/JPY’s upward trend.
The ECB manages monetary policy for the Eurozone, aiming to maintain price stability with inflation around 2%. Quantitative Easing (QE) and Quantitative Tightening (QT) are tools used by the ECB to influence the Euro, with QE generally weakening it and QT strengthening it.
Given the EUR/JPY cross is holding near its all-time high of 178.00, the path of least resistance appears to be upwards. The fundamental divergence is clear, with the European Central Bank holding its rate steady at 2% while the Bank of Japan hesitates on further tightening. This policy gap should continue to favor the Euro over the Yen in the coming weeks.
Japan’s Economic Challenges
We see that uncertainty around Japan’s new Prime Minister and her fiscal plans is weighing heavily on the Yen, a sentiment amplified by recent data. While Japan’s national CPI for October came in at a stubborn 2.8%, the tepid Q3 GDP growth of just 0.1% gives the Bank of Japan very little room to hike rates aggressively. This economic weakness suggests the BoJ will remain cautious, making any significant Yen strength unlikely.
On the other side of the pair, the Eurozone economy is showing stability, supporting the Euro. The latest flash Eurozone HICP inflation reading of 2.1% is comfortably near the ECB’s target, while the composite PMI at 50.8 indicates slight economic expansion. This steady backdrop provides a solid floor for the Euro, especially against a fundamentally weak Yen.
For derivative traders, this environment makes buying call options on EUR/JPY an attractive strategy to capture further upside while managing risk. The sustained trend suggests that any dips should be viewed as buying opportunities. Selling out-of-the-money put options could also be considered to collect premium, capitalizing on the view that downside is limited.
Looking back, we can see this situation mirrors the prolonged Yen weakness we witnessed from 2022 through 2024, when interest rate differentials drove the currency to multi-decade lows. However, traders must remain vigilant for any surprise hawkish rhetoric from the Bank of Japan or verbal intervention from the Ministry of Finance. These events, though unlikely at present, represent the primary risk to long EUR/JPY positions.
