## EUR/JPY 2025: Yen Revaluation Opportunity in a Context of Monetary Convergence

The euro's exchange rate against the Japanese yen marks one of the most interesting moments of the year for those looking to position themselves in currencies with solid fundamental prospects. During the first five months of 2025, the EUR/JPY pair has experienced fluctuations exceeding eight yen, reflecting a market that finally recognizes the change in cycle in Tokyo and Frankfurt's monetary policies.

## Five Factors Explaining EUR/JPY Volatility in 2025

**Change of course by the Bank of Japan**

At the end of January, the BoJ raised its official rate to 0.50%, the highest level since 2008. This move marks the gradual end of the era of virtually free money that fueled carry trades for years. Market forecasts point to further increases toward 0.75% in summer and 1% in autumn, a normalization path that structurally reduces the supply of yen available for speculative operations.

**US trade tensions and tariffs**

Washington implemented tariffs of 10% on general imports and an additional 20% on EU products. This trade friction spiked demand for safe-haven assets at the end of February, pushing the pair to its annual low of 155.6¥. The persistence of these measures keeps the risk of new escalations alive, which would again favor the yen.

**Yen as a hedge currency in uncertain times**

The Japanese currency concentrates defensive demand for several reasons: Japan is a global net creditor, its economy does not depend on external capital, and it has Asia's most liquid foreign exchange market. When geopolitical or stock market tensions resurface, investors who borrowed in yen to finance more profitable positions close those trades, buying yen and appreciating the currency.

**Interest rate cuts in the Eurozone**

The ECB reduced its deposit facility from 4% to 2.25% in three steps (January, March, and April). The slowdown in European growth and moderating inflation justified these adjustments, but each cut eroded the euro's relative attractiveness against the yen, pushing the cross lower with each announcement.

**Chinese monetary stimulus in early May**

Beijing injected liquidity by lowering its short-term repo rate to 1.40% and increasing banks' credit capacity. This measure boosted Asian equity markets, reactivated risk appetite, and discouraged defensive yen buying, allowing the pair to rebound quickly to 164.2¥ on May 1.

## Price Dynamics: Volatility Without Clear Direction

The pair started 2025 near 161.7¥, hit its lowest at 155.6¥ on February 27, reached a high of 164.2¥ in early May, and is currently around 163.4¥. The amplitude of these movements reflects that the market continues reacting more to political and trade shocks than to interest rate differentials. When fear dominates, the yen appreciates; when sentiment improves, the more attractive yields favor the euro again, though less and less.

## Technical Outlook for EUR/JPY

The daily chart maintains a moderate bullish bias with signs of early exhaustion. The price trades above the 161¥ moving average, confirming the uptrend since March. However, recent candles show narrow bodies clustered near the upper Bollinger band (resistance at 164.0¥), a classic indicator of waning buying energy.

The RSI (Relative Strength Index) retreated from 67 to 56 in recent sessions, leaving overbought territory and showing a bearish divergence from the all-time high of May 1. The Bollinger band has narrowed significantly, anticipating a sharp move when volatility expands again.

Next support levels are at 162.5¥ (central Bollinger line) and 160-161¥ (lower band and moving average confluence). A clear break below 160¥ would open the door to 159.8¥. On the upside, surpassing 164.2¥ would encourage advances toward 166-168¥.

## Analysts' Forecasts for EUR/JPY End of 2025

| Source | Min-Max Range |
|--------|--------------|
| LongForecast | 165-173¥ |
| CoinCodex | 166.08-171.94¥ |
| Traders Union | 165.64¥ |
| Bankinter | 160-170¥ |

Although forecasts seem divergent, they reflect different methodologies: some portals provide specific monthly ranges, others broad annual projections detected algorithmically. The broad consensus points to a closing range between 160-170¥.

## Why 2025 Marks an Opportunity to Position in Yen?

The yield differential between Japan and the Eurozone inexorably narrows. A year ago, it was around two percentage points; current projections place it just above 1% by year-end. With the BoJ in an upward cycle and the ECB continuing cuts toward 2%, the classic incentive to borrow cheaply in yen to invest expensive in euros disappears.

This combination of a lower interest rate differential, yen as a safe-haven currency, and the end of carry trades creates conditions for gradual yen appreciation against the euro over the coming quarters.

## Investment Strategies by Time Horizon

**Short-term trading (3-6 months)**

The pair has oscillated within a 160-170¥ channel since the beginning of the year. When approaching the upper zone (165-170¥), it makes sense to sell euros and buy yen targeting 162¥ with a disciplined stop at 171¥. The days before BoJ meetings generate quick swings; active traders can take advantage with small-sized futures or put-spread options that reduce initial premiums.

**Medium-term accumulation (end of 2025)**

A prudent tactic is to buy yen in tranches whenever the pair exceeds 163-164¥, averaging the price and reducing entry risk at a single point. Those needing euro flow hedging can set forwards or yen deposits near current levels; the cost decreases as the interest rate differential converges.

**Profit-taking**

If the pair retraces to 160-162¥ after the expected BoJ hikes in summer and autumn, it is advisable to liquidate at least part of the gains, leaving some as protection against geopolitical shocks that historically favor the yen.

## Main Risks to Watch

An unexpected pause in the BoJ's upward cycle if Japanese inflation unexpectedly subsides, a rebound in European core inflation that halts ECB cuts, or a sustained stock rally that revives carry trades could push the pair back to the upper range of 168-170¥.

New rounds of tariffs between Washington and Brussels would push the yen toward 158-160¥, while gestures of détente could lead to rebounds toward 167-168¥. Maintaining clear stops and reviewing exposure after each central bank meeting remains essential.

## Historical Perspective: EUR/JPY Since 1999

Since its inception in 1999, this pair has witnessed the yen's strength during the 2008 crisis, the eurozone debt crisis (, and euro fluctuations amid European challenges. Divergences in monetary policy between the ECB and BoJ have been the constant modulator. After years of euro appreciation driven by European recovery and BoJ monetary expansion, today the pair is again moving toward territory where the yen regains prominence as a safe haven, while the euro presses lower amid regional slowdown.

## Conclusion: The First Window in Two Decades for Yen

Perspectives converge on a EUR/JPY range of 158-170¥ for the end of 2025, reflecting a market that is finally absorbing the cycle change. The Bank of Japan is ending the era of free money; the ECB accelerates cuts. The yield gap will shrink from two points to just over one, extinguishing the classic carry trade incentive. Added to this is the yen's defensive stance amid rising tensions.

With the pair still bouncing between 160-170¥, the prudent strategy is to buy yen on rebounds toward 165-170¥ with targets at 160-162¥ and stops at 171¥. The structural bias favors the Japanese currency; for the first time in nearly two decades, carry trades no longer represent a one-way bet, suggesting a gradual downward trend for EUR/JPY for the rest of 2025.