In the Eurozone

ECB officials, including François Villeroy de Galhau and Martins Kazaks, stress the need for flexible policy amid balanced inflation and growth risks. The Governor of Slovakia’s National Bank, Peter Kazimir, echoed this sentiment, suggesting no changes to current monetary policy.

EUR/JPY remains supported by rate differentials and positive market sentiment, amid speculation on the BoJ’s future actions. Investors are cautious of potential Yen intervention. The Euro was strongest against the Swiss Franc today, with varying percentage changes against other major currencies.

As of November 3rd, 2025, we see a clear policy split developing between the Bank of Japan (BoJ) and the European Central Bank (ECB). The BoJ is signaling a potential interest rate hike in December, which would strengthen the Yen, while the ECB is indicating it will hold rates steady for a prolonged period. This divergence is the primary factor we should be watching in the EUR/JPY pair over the coming weeks.

To give this context, Japan’s core inflation has been holding above 2% for over a year, recently reported at 2.7% for October 2025, putting significant pressure on the BoJ to finally exit its negative interest rate policy. Meanwhile, with the ECB’s key deposit rate at 3.25%, the significant interest rate differential continues to support the euro. This fundamental tension makes the pair particularly sensitive to any new data or central bank comments.

Managing Risk with Options

Given the uncertainty surrounding a BoJ rate hike, we should consider using options to manage risk. Buying EUR/JPY put options with a January 2026 expiration is a straightforward way to position for a stronger yen if the BoJ acts in December. This strategy offers the potential for significant gains if the pair moves lower but limits our maximum loss to the premium paid for the options.

The increasing speculation will likely drive up implied volatility in the EUR/JPY options market as we approach the mid-December BoJ meeting. This is a pattern we’ve seen before, particularly in late 2022 when the BoJ first surprised markets by adjusting its yield curve control policy. For traders who anticipate a sharp move but are unsure of the direction, purchasing a strangle—buying both an out-of-the-money call and put option—could be an effective strategy.

Conversely, if we believe the new Prime Minister’s fiscal spending plans will force the BoJ to delay its hike, the current interest rate differential will remain highly favorable for the euro. In this scenario, selling out-of-the-money EUR/JPY put options could be a viable income-generating strategy. This position profits from the pair remaining stable or drifting higher, allowing us to collect the option premium as time passes.

We must also remain alert to the constant threat of direct intervention by Japanese authorities, which has historically capped yen weakness when it moves too quickly. This suggests that the upside for EUR/JPY may be limited, perhaps around the 180.00 level. Therefore, selling call spreads could be an attractive strategy to capitalize on a sideways or downward-trending market while defining our risk.

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