The EUR/JPY has seen a rise, trading around 177.50 after the Bank of Japan (BoJ) kept its short-term interest rate target unchanged between 0.4%-0.5% for October. This comes after a two-day loss period, with the decision aligning with market expectations.

Monetary Policy And Inflation Dynamics

The BoJ has extended the pause in its tightening cycle for the sixth consecutive meeting since a 25 basis points hike in January. Discussions may begin on resuming rate hikes as inflation dynamics change, but the outlook faces challenges due to newly elected Prime Minister Sanae Takaichi’s support for loose monetary policy.

The Japanese Yen may weaken as demand for safe-haven assets declines amid optimism around a potential US-China trade agreement. A meeting is ongoing between US President Donald Trump and Chinese President Xi Jinping, with discussions revolving around various trade issues.

The market is anticipating economic data from Germany and the Eurozone, in addition to the European Central Bank (ECB) interest rate decision. The ECB is expected to keep rates steady for a third straight meeting, amid signs of economic growth and easing inflation. The Bank of Japan’s interest rate decisions are crucial indicators for the Japanese Yen’s performance, depending on the bank’s stance on inflation and economic outlook.

We are seeing the EUR/JPY cross push above 177.50 this morning, October 30th, driven by the Bank of Japan’s decision. The BoJ held its interest rate target steady between 0.4% and 0.5%, signaling a continued dovish stance. This makes holding the Japanese Yen unattractive for now.

Interest Rate Gap And Trading Strategies

The European Central Bank is widely expected to hold its own rate at 3.75% later today, which reinforces a significant interest rate gap. This wide differential, now over 300 basis points, encourages carry trades where traders borrow cheap Yen to invest in higher-yielding Euros. Looking back, this strategy has been profitable for most of 2025 as the central bank divergence grew.

We are also watching the US-China trade talks closely, as progress there is improving overall market sentiment. This optimism reduces the demand for the Japanese Yen, which is typically bought as a safe-haven asset during times of uncertainty. A positive outcome from the meeting would likely add further downward pressure on the Yen.

Given this outlook, we believe traders should consider buying call options on EUR/JPY with strike prices above 178.00 expiring in the next four to six weeks. This strategy allows for profiting from continued upward momentum while defining the maximum risk to the premium paid. For those with a more neutral to bullish view, selling out-of-the-money put options could also be an effective way to collect premium, capitalizing on the view that the pair is unlikely to see a sharp reversal.

In the coming days, we will be focused on the unemployment and GDP figures from Germany and the broader Eurozone. The flash estimate for Eurozone Q3 GDP showed a modest 0.2% expansion, while headline inflation eased to 2.7% in October, confirming the narrative of economic resilience. Any significant miss in upcoming data could, however, challenge this view and cause a temporary pullback.

Create your live VT Markets account and start trading now.