EUR/JPY traded in a narrow band near 184.00 in the European session on Thursday. The pair held steady as markets looked for new signals on future European Central Bank (ECB) and Bank of Japan (BoJ) policy.
Several ECB officials said the April policy meeting remains open. They pointed to upside inflation risks linked to higher oil prices after the Middle East war.
Policy Signals In Focus
Last week, ECB policymaker and Bundesbank president Joachim Nagel said a rate rise in April is an option. He said “every passing day contributes to an increase in inflationary risks”.
On Thursday, ECB Governing Council member Gediminas Simkus said the ECB should be cautious because conditions are changing. He also said it is too early to predict the April decision.
The BoJ said last month it could tighten policy further if the economy performs as expected. On Wednesday, newly appointed BoJ member Toichiro Asada said higher oil prices have increased upside inflation risks.
A correction at 11:30 GMT clarified that the BoJ kept the option of further tightening at the March policy meeting. It also clarified this point was previously stated incorrectly.
One Year Later
Looking back to this time last year, around April 2025, we recall how EUR/JPY was stuck in a narrow band near 184.00. The market was paralyzed, waiting for clues from the European Central Bank and the Bank of Japan. Today, that stalemate is a distant memory, as a year of divergent policy has created a new trading environment.
The hawkish talk from ECB officials that we saw in early 2025, driven by fears of rising inflation, never materialized into further hikes. Instead, we have seen the ECB begin an easing cycle as inflation has cooled substantially across the Eurozone. Eurostat’s latest flash estimate for March 2026 confirmed headline inflation is holding at a manageable 2.1%, reinforcing expectations of further rate cuts.
Conversely, the Bank of Japan has followed through on the tightening signals it began sending in March 2025. We have now seen two modest rate hikes, bringing the overnight call rate to 0.25%, a level unseen since 2008. This move is supported by Japan’s core inflation, which has remained above the 2% target, registering 2.6% in the most recent data.
This clear policy divergence has broken the pair out of the tight ranges of last year, introducing sustained volatility. For derivative traders, this means that strategies profiting from price movement are now far more effective than the range-bound approaches that worked in 2025. Implied volatility on EUR/JPY options is currently trading near 12-month highs, reflecting this new market reality.
With the fundamental backdrop of a cautious ECB and a gradually tightening BoJ, the path of least resistance for the pair appears to be lower. We are seeing traders position for this by buying put options or establishing put spreads to capitalize on further yen strength against the euro. The expectation is that the interest rate differential, which once heavily favored holding euros, will continue to narrow throughout 2026.
