Insights 
VT 
German Inflation Data
German inflation data revealed controlled price trends with a Harmonized Index of Consumer Prices (HICP) of 0.3% month-on-month in October. The annual rate fell to 2.3%, slightly down from September. European Central Bank President Christine Lagarde noted the rate-cutting cycle is mostly complete, while concerns over service inflation remain.
In Japan, Prime Minister Sanae Takaichi supports pro-stimulus policies. Despite underlying inflation moving toward the 2% target, the Bank of Japan maintains its policy stance. The Yen’s weakness prompted Finance Minister Satsuki Katayama to monitor currency movements, hinting at possible intervention.
The clear divergence between the European Central Bank and the Bank of Japan continues to drive EUR/JPY higher, and we see this trend persisting. With the ECB indicating its rate-cutting cycle is mostly over, the interest rate differential supporting the euro remains significant, currently standing at over 275 basis points based on November 2025 money market rates. This fundamental backdrop makes staying with the uptrend the path of least resistance for now.
For the coming weeks, we should consider buying call options on any small dips to capitalize on the upward momentum. The positive risk sentiment, fueled by stability in the US, is weakening the Yen’s safe-haven appeal and bolstering the carry trade. Given that Japan’s new government appears committed to further stimulus, there are few domestic catalysts to reverse the Yen’s weakness.
Primary Risk Of Intervention
However, the primary risk is a sudden intervention from Japanese authorities, which we must take seriously. The Finance Minister’s verbal warnings are becoming more frequent, reminding us of the sharp, multi-figure reversals we saw back in September and October of 2022 when the Ministry of Finance last stepped in. This threat makes holding naked long positions exceptionally risky.
This tension is clearly reflected in the options market, where one-month implied volatility for EUR/JPY has jumped to 12.5% this week, up from an average of 9% over the last quarter. Therefore, any long positions should be hedged by purchasing out-of-the-money puts to protect against a sudden, sharp downturn triggered by intervention. These puts act as insurance against the yen strengthening by several hundred pips in a single session.
