Insights 
VT 
The Euro is trading around 176.26 against the Japanese Yen after ending a four-day losing streak. Market participants are assessing Japan’s fiscal stimulus plans and differing monetary policies between the Bank of Japan and the European Central Bank.
Japan is planning an economic stimulus package valued at over last year’s ¥13.9 trillion to address inflation and support spending. The package includes tax reductions, energy subsidies and technology investments, while 65% of surveyed economists express concerns about Japan’s fiscal health.
Japanese Economic Outlook
Japan’s Economics Minister states the economy will receive support until wage growth improves, focusing on low consumption and ongoing inflation. A separate survey indicates the Bank of Japan is likely to increase rates, supported by 60% of economists predicting a hike to 0.75% by Q4.
In the Eurozone, the ECB is projected to maintain rates at 2.00% until at least 2027, anticipating modest economic growth. Predictions suggest a GDP growth of 1.2% for 2025, with inflation at 2.2%, indicating there’s little need for further easing by the central bank. The ECB’s next policy decision is due on 30 October, following the Bank of Japan meeting.
The EUR/JPY pair is stuck near 176.00, and we see the market holding its breath ahead of next week. The main story is the growing difference between the Bank of Japan, which looks ready to raise rates, and the European Central Bank, which seems content to wait. This policy divergence is the central theme that will drive trading in the coming weeks.
In Japan, a large fiscal stimulus package is on the way, which normally might weaken the yen. However, we see the Bank of Japan’s focus is squarely on inflation, with Japan’s September 2025 core CPI recently reported at 2.8%, well above the 2% target. This strengthens the case for the BoJ to hike rates soon, possibly as early as the October 29-30 meeting.
Central Bank Meetings Impact
Meanwhile, the situation in Europe is much quieter, with the ECB expected to keep rates at 2.00% on October 30. Recent data supports this, as Eurozone inflation is stable at 2.3% and latest manufacturing PMI figures point to sluggish growth. There is little pressure on the ECB to change its neutral stance for the foreseeable future.
We are watching a major policy shift unfold, which started when the BoJ ended its negative interest rate policy back in 2024. This move set the stage for the current normalization path we see today. It is a stark contrast to the ECB, which completed its own aggressive rate-hiking cycle over two years ago.
Given this outlook, we believe positioning for a lower EUR/JPY is the logical move, as a hawkish BoJ surprise could cause a sharp drop. One-week implied volatility has already risen to 9.5%, suggesting traders are pricing in a significant move around the central bank meetings. Buying put options or establishing put spreads on EUR/JPY could be an effective way to position for this potential downside while managing risk.
