The EUR/JPY is trading around 175.70, marking its third day of decline. This depreciation comes as the Japanese Yen strengthens following Bank of Japan Governor Kazuo Ueda’s statement about potential policy normalisation, suggesting a possible near-term rate hike. Ueda reaffirmed adjustments in monetary policy tied to economic outlook improvements.

Politically, attention is focused on Japan, where opposition parties respond to the ruling Liberal Democratic Party’s proposal for a new prime minister vote. Japan Innovation Party co-founder Hirofumi Yoshimura mentioned a 50-50 chance of forming a coalition with the LDP. Meanwhile, the Euro stabilises as France’s government survived a no-confidence vote, bolstered by Prime Minister Sebastien Lecornu’s pension reform suspension.

Eurozone Outlook and Monetary Policy

Additionally, the Euro gains support as the European Central Bank is expected to maintain current interest rates. ECB policymaker Edward Scicluna noted that higher trade tariffs’ impact on inflation remains uncertain, cautioning against hasty conclusions. The Euro weakened the most against the Swiss Franc today, as shown in a currency change heat map, revealing various percentage changes across major currency pairs.

We are seeing the EUR/JPY cross trading near 175.70 as the Japanese Yen strengthens. This is happening because the Bank of Japan (BoJ) Governor has signaled that they could raise interest rates soon if the economy looks strong. This marks a significant shift from the ultra-easy monetary policy that we saw for years.

This hawkish stance is backed by recent data showing Japan’s core inflation has remained above the BoJ’s 2% target for over a year, with the latest figures from September 2025 showing a 2.7% rise. After finally ending negative interest rates back in the spring of 2024, the market is now pricing in at least one more rate hike before the end of the year. Traders should be prepared for the BoJ to continue its path of policy normalization.

Adding to the uncertainty, we are watching Japanese politics very closely ahead of the proposed October 21 vote for a new prime minister. The potential for a new coalition government creates short-term volatility, and the outcome could significantly impact the Yen’s direction. Any signs of instability could temporarily weaken the Yen, creating a buying opportunity for the Euro.

Financial Implications for Traders

On the other side of the pair, the Euro is finding some support and preventing a steeper fall. The French government’s survival of a no-confidence vote has removed a key political risk in the Eurozone. This stability is reassuring for those holding the common currency.

The European Central Bank (ECB) is also helping the Euro by signaling it is in no rush to cut interest rates. With Eurozone core inflation still running at 2.9% as of last month, policymakers are remaining cautious, which keeps the Euro relatively strong against other currencies. We have seen this sentiment reflected in recent ECB commentary, which has consistently pushed back against market expectations for early rate cuts.

Given these conflicting pressures, we should expect continued choppiness in the EUR/JPY pair in the coming weeks. Derivative traders could consider using options to trade the expected increase in volatility, especially around the October 21 political developments in Japan. A long straddle could be an effective strategy to profit from a large price move in either direction without having to predict the outcome.

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