EURJPY Between the ECB and the Bank of Japan: Equities, Hedging and the Yen

Key takeaways

1. The euro touched 175.08 yen on Friday, its weakest level since October 2025, and was set for a weekly fall of about 1.1% (Reuters).

2. The ECB decides at 13:15 UTC on Thursday and the Bank of Japan around 03:00 UTC on Friday, so EURJPY faces both policy outcomes within about 14 hours.

3. When the yen rises with falling equities, check whether the move comes from hedging or from investors bringing money home, because hedging flows reverse more easily.

The development

EURJPY had its weakest week in more than a year. On Friday the euro touched 175.08 yen, its lowest level since October 2025, and was heading for a weekly loss of about 1.1% (Reuters). Two forces combined: French bond stress weighed on the euro, while a sell-off in AI-related shares lifted demand for the yen as a haven (Reuters). MUFG noted that the yen's negative correlation with global equity markets had strengthened (MUFG Research).

Both central banks meet this week. The ECB is expected to keep its deposit rate at 2.50% on Thursday; 70 of 73 economists in a Reuters poll expected a hold (Admirals, citing the Reuters poll). The Bank of Japan (BoJ) is expected to keep its policy rate at 1.25% on Friday and to publish an updated Outlook Report. Reports suggest it may say that underlying inflation has reached its 2% target (Newsquawk).

Market transmission

EURJPY combines two different stories. The euro side is driven by rate expectations and the French risk premium. The yen side is now tied closely to risk appetite: when equities fall, Japanese investors and foreign holders of Japanese assets buy yen to cover currency risk. Deutsche Bank's Shoki Omori said the yen "was bought as a hedge, not as an allocation" and saw no sign of Japanese institutions bringing money home (Reuters). This matters because hedge purchases can be unwound quickly when equities recover.

What to monitor next

• Major equity indices, especially technology shares. A rebound would test whether the yen's gains were hedging flows.

• Lagarde's press conference at 13:45 UTC on Thursday, including any reference to France.

• Tokyo October CPI late on Thursday. In September headline Tokyo CPI rose to 2.7% from 1.9% (Newsquawk).

• The BoJ's description of underlying inflation in the Outlook Report on Friday. Markets price about an 80% chance of a hike in December (Newsquawk).

Reusable lesson

A cross such as EURJPY is often a contest between two unrelated drivers. Write each leg down separately: what moves the euro and what moves the yen. Then check which leg did the work by comparing EURUSD and USDJPY over the same period. If most of the move came from the yen and the yen tracks equities, follow equities and volatility as closely as the central-bank calendar.

Invalidation and risk

A strong rebound in equities would weaken the haven link and could reverse yen gains quickly. A BoJ statement that sounds more cautious than reported could disappoint yen buyers. A firmer ECB stance on inflation, or clear relief in French bonds, would support the euro leg.

Glossary

Cross rate: An exchange rate between two currencies that does not include the US dollar, such as EURJPY.

Currency hedge: A position that offsets the exchange-rate risk on a foreign investment; it is often unwound when the risk falls.

Outlook Report: The BoJ's quarterly assessment of growth and inflation, including its forecasts.

Sources

Reuters (via Investing.com) (2026-10-23): Euro sinks on French debt worries, yen gains for week on AI rout

Reuters (via Euronext Live) (2026-10-23): Euro set for weekly drop, yen eyes biggest gain since early September

MUFG Research (2026-10-23): FX Weekly

Newsquawk (2026-10-23): Week in Focus 26-30th October 2026

Admirals (citing Reuters poll) (2026-10-21): Central Bank Super Week: Five Rate Decisions in Three Days

Disclaimer

This note is provided by the SummitFx Project for general education and market context only. It is not investment advice, not a solicitation to buy or sell any instrument, and not a personal recommendation. Foreign exchange and related markets are leveraged and can result in the loss of some or all of your capital. Figures are believed accurate at the time of research and may already be stale. Always verify live prices, official releases, and your own risk limits before acting. Past market behaviour does not determine future results.