The EUR/JPY pair remains stable at around 181.10, as the market eyes the release of Eurozone Retail Sales data. This currency stability comes amidst remarks from BoJ Governor Ueda, suggesting potential support for the Yen through a possible rate hike at the BoJ’s next policy meeting.
Currently, there is an 80% market expectation for a rate hike by the BoJ in December. Meanwhile, unexpected inflation increase in the Eurozone in November reduces the likelihood of further ECB rate cuts, potentially supporting the Euro. The ECB has maintained its interest rates, with the deposit rate at 2.00%.
ECB Cautious Approach
This cautious approach from the ECB is guided by data dependency for future monetary decisions. The forthcoming Eurozone Retail Sales report, predicting a 1.4% rise for October, could impact the EUR/JPY direction. A better-than-expected result would benefit the Euro, while a lower figure may weaken it against the Yen.
The Japanese Yen’s value is influenced by national economic performance, BoJ policies, US-Japan bond yield differentials, and global risk sentiment. The BoJ’s historical policy of currency devaluation has been challenged recently by a shift towards reducing policy divergence with other central banks, providing some Yen support.
We see the EUR/JPY pair holding steady around 181.00, but this stability is likely temporary. The market is focused on the Bank of Japan’s (BoJ) next policy meeting, where expectations for an interest rate hike are now very high. This growing chance of a stronger Yen is the most significant factor for traders in the coming weeks.
Potential Impact of BOJ Rate Hike
The probability of the BoJ raising its policy rate from the current 0.10% is now around 80% for the December meeting, according to market swaps. This follows a long period of loose policy that ended when the BoJ abandoned negative rates back in early 2024. This move is supported by firm economic data, as Japan’s national core inflation has remained above the bank’s 2% target for over a year, with the latest reading for October 2025 hitting 2.9%.
Meanwhile, we do not expect the European Central Bank (ECB) to weaken the Euro, as it appears done cutting rates from the current 2.00% deposit facility. Eurozone inflation data from the flash estimate for November 2025 unexpectedly rose to 2.5%, making further ECB cuts unlikely. Today’s retail sales figures will be a key short-term test, and a miss on the expected 1.4% rise could weigh on the Euro.
For derivative traders, this situation suggests positioning for a potential decline in EUR/JPY or a significant increase in volatility. Buying put options on EUR/JPY offers a direct strategy to capitalize on a strengthening Yen following a potential BoJ rate hike. We also see opportunities in strategies that benefit from a large price swing, regardless of direction, such as buying straddles ahead of the central bank announcements.
