EUR/JPY, the European macro-trader's pair
EUR/JPY is one of the most active crosses in the world, with estimated daily volume of ~$120-150 billion. It's particularly favored by macro-traders and carry traders because it combines two currencies with very different interest rate dynamics: the euro (moderate rates under ECB) and Japanese yen (historically very low rates, ultra-accommodative BoJ for 25 years).
The EUR/JPY carry trade
For years, the EUR/JPY carry trade consisted of borrowing yen at 0 % and buying euros to profit from the rate differential. As long as ECB was more hawkish than BoJ, long EUR/JPY positions earned the positive swap. One of hedge funds' favorite historical strategies.
But since 2024, the BoJ has been timidly normalizing (exiting NIRP, first rate hikes). Carry trade is eroding → massive unwinds → EUR/JPY crash of -8 % in August 2024 (Nikkei -12 % day). It's the pair that amplifies risk-off shocks most.
Main drivers
- BoJ and yen: verbal interventions (Kanda Naoki in 2024), actual interventions (Oct 2022 and 2024: USD/JPY lost 5 yen in hours), policy changes → priority #1 on this pair.
- ECB and euro: Lagarde decisions, eurozone data (PMI, CPI). Secondary but present effect.
- Global risk sentiment: yen remains a safe-haven → in risk-off, JPY strengthens → EUR/JPY drops sharply (often -200 pips in hours).
- Rate differential: if ECB cuts and BoJ hikes → carry trade ends → EUR/JPY falls. Inverse also true.
Historical volatility
EUR/JPY has an average daily range of 80-120 pips, making it more volatile than EUR/USD. Over 20 years, the range has been extreme: low of 95 (March 2020) to high of 175 (July 2024 carry trade peak). You can gain 500 pips in a month on a good trend, but also lose that much if you misread the direction.