Insights 
VT 
The EUR/JPY currency pair has risen, reflecting diminished demand for the Japanese Yen as US-China trade tensions ease. Comments from US President Donald Trump have reduced fears of a trade war, supporting the Euro amid ongoing political uncertainty in France.
At present, EUR/JPY trades around 176.20, showing a 0.25% increase. This rise is attributed to a decrease in safe-haven asset demand and positive signals from the US-China relationship.
Market Focus Shift
In a statement, Trump assured that relations with China would be fine, despite earlier tariff threats. This has shifted market focus to his more conciliatory tone, easing fears of further trade disputes. Japan faces political uncertainty due to the ruling coalition changes, affecting its currency stability.
In Europe, political tensions in France have lessened with the reappointment of Sébastien Lecornu as Prime Minister and Roland Lescure as Finance Minister. Despite this, market players are cautious, awaiting further developments in US-China relations and France’s political landscape.
The ECB’s recent meeting minutes align with its current monetary policy, supporting the medium-term inflation target. Meanwhile, investor sentiment remains cautious pending updates on global trade and political issues.
The Euro has shown varied performance against major currencies, being strongest against the Swiss Franc. Currency changes are presented in a heat map with the Euro showing strength against the US Dollar and weakness against others like the Swiss Franc.
Divergence in Monetary Policies
Given the renewed risk appetite we’re seeing today, October 13, 2025, the path of least resistance for EUR/JPY appears to be upward in the coming weeks. The core of this view is the stark policy difference between the European Central Bank (ECB) and the Bank of Japan (BOJ). This divergence supports a strategy of being long Euro and short Japanese Yen.
We see the BOJ remaining committed to its ultra-loose monetary policy, especially with last week’s national Core CPI data for Japan coming in at just 1.8%, still below the central bank’s target. This reinforces the expectation that the policy rate will stay at -0.1%, making the Yen an attractive funding currency for carry trades. The incoming Takaichi administration’s focus on fiscal expansion further suggests a weaker Yen ahead.
Conversely, the Euro is finding solid ground, with the ECB holding its deposit rate at 3.0% and signaling no immediate cuts. ECB President Christine Lagarde noted in a speech last Friday that eurozone wage growth, while moderating to 2.9% in the third quarter, remains too firm to consider easing policy. The recent stabilization of French politics also removes a key headwind for the Euro that we were concerned about earlier this year.
The primary risk to this outlook is the US-China trade situation ahead of the potential November 1st tariff implementation. We remember how the VIX index spiked above 30 during similar tensions back in the 2018-2019 period, crushing risk-sensitive pairs like EUR/JPY. Derivative traders should therefore consider hedging long EUR/JPY positions by purchasing cheap, out-of-the-money put options on the pair or buying VIX call options to protect against a sudden reversal.
A prudent approach would be to use options to express the bullish view on EUR/JPY, such as buying call spreads. This defines the maximum risk while still allowing participation in the upside if risk sentiment holds firm. Recent data from the US Census Bureau showed the trade deficit with China unexpectedly widened, which could embolden the tariff hawks in Washington.
The relative calm in Europe, particularly after Prime Minister Lecornu’s reappointment in France, suggests the Euro’s main risks are now external. This makes the yield differential between the Euro and the Yen the dominant driver, as long as a full-blown trade war is averted. We will be closely watching for any new rhetoric from Washington or Beijing.
