The Euro declined against the Japanese Yen, reaching a two-week low at 175.20 due to Yen strength spurred by the Bank of Japan’s hawkish statements. Deputy Governor Shinichi Uchida remarked that Japan’s economy is recovering, and the bank might tighten monetary policy further if economic conditions align.

Governor Kazuo Ueda, in Washington, reiterated the BoJ’s stance to adjust monetary easing based on confidence in economic forecasts. This has reinforced market expectations for a potential rate hike, possibly in December, contrasting with the policies of other major central banks.

The Euro’s Temporary Support

In Europe, French PM Lecornu avoided two no-confidence votes, which temporarily supported the Euro. Attention is now on the Eurozone’s Harmonized Index of Consumer Prices, expected to confirm slightly accelerated inflation in September.

The Bank of Japan, focused on price stability with a 2% inflation target, has historically followed an ultra-loose monetary policy since 2013. This strategy included Quantitative and Qualitative Easing, negative interest rates, and bond yield control, leading to a weaker Yen as other central banks raised rates to combat inflation.

Increased global energy prices and a weaker Yen pushed Japanese inflation above the 2% target. Rising wages in Japan also contributed to this inflationary trend.

Opportunities for Yen Traders

With the EUR/JPY pair breaking down to 175.20, we see a clear signal of renewed Yen strength. This trend is being driven by increasingly hawkish comments from Bank of Japan officials, suggesting a monetary policy shift is imminent. Derivative traders should interpret this as a prime opportunity to position for further JPY appreciation.

The statements from BoJ’s Ueda and Uchida are not just talk; they are backed by solid data. Japan’s national core CPI, released just last week, registered at 2.9%, marking the 18th straight month above the BoJ’s 2% target. This persistent inflation gives the central bank the justification it needs to consider another rate hike.

This builds on the momentum from the spring “Shunto” wage negotiations earlier this year, which secured an average pay increase of over 4.5% for major firms. This is the kind of sustained wage pressure the BoJ has been waiting for to confidently move away from the ultra-loose policies that weakened the Yen for years, especially during the 2022-2023 period. The initial rate lift-off in March 2024 now looks like just the first step in a longer tightening cycle.

In contrast, the Euro’s brief rally on French political news appears fragile. The focus today is on the final Eurozone HICP data, which is widely expected to confirm the flash estimate of 2.8% for September. This contrasts sharply with the European Central Bank, which has held its main refinancing rate at 3.75% for the past four meetings, with market chatter now shifting towards potential rate cuts in early 2026.

Given this growing policy divergence, we should consider strategies that profit from a lower EUR/JPY exchange rate. This includes buying EUR/JPY put options or, for a more capital-efficient approach, establishing bear put spreads. Shorting EUR/JPY futures contracts is also a direct way to act on this view.

The market consensus points towards a BoJ rate hike in December rather than the upcoming October meeting. We should therefore focus on options with expirations in December 2025 or January 2026 to capture the potential market impact of the decision. Implied volatility on these contracts is likely to climb, making now an opportune time to enter these positions.

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