The EUR/JPY pair remains near 183.00 as concerns mount over Japan’s fiscal outlook. Japan’s Prime Minister, Sanae Takaichi, promotes proactive fiscal policy, contrasting with excessive tightening to improve economic growth.
After a 0.51% gain in the previous session, EUR/JPY trades around 182.90 during Asian trading. The Japanese Yen is pressured due to worries about Japan’s fiscal trajectory.
Fiscal Policy And Economic Growth
Takaichi emphasised sustainable fiscal policy and economic growth through improved corporate profits and wage gains. The Yen might strengthen if the Bank of Japan raises its policy rate by 25 basis points to 0.75% amid high inflation.
Market participants watch BoJ Governor Kazuo Ueda’s comments for hints on next year’s policy, with potential rate hikes to 1% by July. The Euro strengthens due to easing Eurozone inflation, reducing the need for European Central Bank intervention.
The upcoming ECB December policy meeting is expected to maintain the status quo, with President Christine Lagarde likely to keep rates unchanged through next year.
The Bank of Japan has shifted from ultra-loose monetary policies starting in 2024 as inflation rose above its 2% target and salary prospects increased. Previous BoJ policies led the Yen to depreciate, but 2024 saw policy adjustments to stabilise the currency.
Bank Of Japan Rate Decision
With the Bank of Japan’s rate decision expected tomorrow, the 25 basis point hike to 0.75% is largely priced into the market. We are therefore focused on Governor Ueda’s forward guidance, as this will determine the Yen’s direction in the coming weeks. Any hint of a pause or a dovish tone could see the Yen weaken further, pushing EUR/JPY higher.
To support this view, we look at recent data from the perspective of late 2025. Japan’s national Core CPI for November 2025 came in at 2.7%, justifying the BoJ’s move but also highlighting the inflationary pressure from the government’s loose fiscal policy. In contrast, the flash estimate for Eurozone HICP inflation in November 2025 was 2.3%, allowing the European Central Bank to comfortably hold rates steady and signal an end to any further easing.
Given this, many traders have likely positioned for a “sell the fact” event on the Yen. We see activity in short-term EUR/JPY put options, which would profit if Governor Ueda delivers a surprisingly hawkish statement tomorrow, causing a sharp appreciation in the JPY. This strategy bets that the BoJ will want to sound tough to counteract the government’s spending plans.
On the other hand, the underlying trend of Yen weakness, driven by Japan’s fiscal concerns, remains a powerful force. Traders anticipating a dovish disappointment from the BoJ are likely holding or buying EUR/JPY call options. This would capitalize on a scenario where the market concludes this rate hike is a “one and done” for the near future, causing the pair to break above 183.00.
Looking at the broader options market, implied volatility for EUR/JPY has increased ahead of the meeting, reflecting the uncertainty. This suggests that strategies like straddles, which profit from a large price move in either direction, are being used to trade the event itself. This approach avoids guessing the direction but bets that the post-meeting move will be significant.
Over the next few weeks, after the initial reaction, the interest rate differential will remain key. Even with a hike to 0.75%, Japan’s rates are far below the ECB’s, which are holding steady at 3.75% after a series of cuts in 2024 and early 2025. This significant gap will continue to make the carry trade of selling Yen to buy Euros an attractive strategy.
