Insights 
VT 
The Japanese Yen gained support from risk aversion as global equity markets faced sharp sell-offs. Meanwhile, the Euro struggled due to mixed data from the Eurozone, despite slightly stronger-than-expected economic figures. The Bank of Japan’s cautious Minutes restricted significant gains for the Yen, despite official warnings about its excessive weakness.
Stability Amidst Volatility
The EUR/JPY stabilised around 176.50, a 0.10% increase for the day, after dipping to a two-week low of 175.70. The Yen attracted attention as a safe-haven asset amid increased caution over economic growth and US trade policy, limiting the Euro’s potential benefits from positive data.
Eurozone’s services sector activity improved, with the HCOB Services PMI rising to 53 in October. Germany’s index also increased to 54.6, the highest in over a year. However, the Eurozone PPI dropped by 0.1% MoM and 0.2% YoY, suggesting weaker inflationary pressures on the currency.
The Bank of Japan’s meeting Minutes from October confirmed a cautious approach to policy tightening. Japan’s currency diplomat hinted at possible interventions if Yen movements deviate significantly from fundamentals. The Euro showed a slight increase against the Canadian Dollar, reflecting varied performances against other major currencies.
We see a classic tug-of-war as risk-off sentiment strengthens the Yen, but the Bank of Japan remains cautious on policy. This conflict suggests volatility is the main trade to consider in the coming weeks. Recent data shows currency volatility indices have climbed over 15% in the last month, supporting the case for buying options like straddles to capture a large price move.
Capped Upside for EUR/JPY
The explicit warning from Japan’s top currency diplomat should not be ignored, as it directly references the interventions of 2022 and 2024. This creates a psychological ceiling on how high EUR/JPY can go, especially as the market recalls how quickly officials acted in the past. We believe selling out-of-the-money call options or establishing bear call spreads offers a way to capitalize on this capped upside.
While the Eurozone services data showed a bright spot, the decline in producer prices is a more telling signal for us. This weakness in inflation was echoed in the latest Eurostat report from October 2025, which showed headline inflation falling to 1.9%, just below the ECB’s target. Consequently, traders might look at buying EUR/JPY put options to bet on a decline driven by a weaker Euro, independent of Yen movements.
