EUR/JPY 2025: Where is the euro-yen pair headed after monetary shifts?

The euro-yen exchange rate has been a roller coaster in 2025 so far. The EUR/JPY pair started the year near 161.7 ¥ per euro, plummeted to 155.6 ¥ at the end of February, and rebounded to 164.2 ¥ in early May. Today, it trades around 163.4 ¥, reflecting the tension between a yen regaining prominence and a euro under pressure. This volatility is no coincidence: it responds to structural changes in the monetary policies of the two main Western blocs.

The yen as a safe-haven asset: Why it rises when everything trembles

When turbulence shakes global markets, money seeks refuge. The Japanese yen is the preferred destination for deep reasons: Japan is the world’s largest net creditor, it does not depend on external financing, and its economy inspires confidence even in uncertain times.

There is another less obvious but powerful mechanism: carry trade. For years, investors have borrowed in yen (at nearly zero interest rates) to finance purchases of more profitable assets in other markets. When panic ensues, everyone exits simultaneously. They close positions, repay yen loans, and buy Japanese currency to protect themselves. This drives up demand and appreciates the yen.

The yen market is colossal and ultra-liquid. In a crisis, you can buy or sell billions without significantly moving the price. That’s why investors prefer it over other Asian currencies when they need a quick safe haven.

Five earthquakes that moved the EUR/JPY pair in 2025

The Bank of Japan’s shift: In January, BoJ raised its benchmark rate from 0.25% to 0.50%, the highest since 2008. The market expected this to strengthen the yen, and it did, but briefly. European yields remained well above Japanese yields, so the momentum faded within days.

US tariffs arrive: In February, Washington announced tariffs of 10% on all imports and an additional 20% on goods from the EU. Fear of a trade war triggered a flight to safe assets. The EUR/JPY plunged to its annual low of 155.6 ¥ on February 27.

ECB rate cuts build pressure: Between late January and April, the European Central Bank lowered its deposit rate from 4% to 2.25% in three moves. The eurozone cools, inflation recedes, and the ECB responds by cutting rates. Each cut dampened euro rebounds.

Tariffs become reality: In April, they come into effect. Although the impact was less dramatic than feared (markets had already priced it in), it reinforced risk aversion. The pair fluctuated between 158 ¥ and 161 ¥ that week.

China injects stimulus: In May, Beijing cut its 7-day repo rate to 1.40% and reduced bank reserve requirements. This liquidity sparks risk appetite. Investors abandon their yen safe-haven purchases (and the pair quickly recovers, reaching 164.2 ¥ on May 1.

The lesson: the euro-yen quote responds more to geopolitical shocks than to yield differentials. When fear dominates, the yen appreciates. When market sentiment improves, higher euro yields favor the euro again.

The yield gap closes: The big structural change

Here is the key to the forecast for the coming months. The yield differential between Japan and the eurozone is inexorably narrowing, and that changes the game.

The Bank of Japan plans to raise its rate to 0.75% in summer and to 1% in autumn. It’s not a drastic shift, but enough to halt decades of one-way carry trade. Each increase reduces the profitability of borrowing cheap yen to invest in more expensive euros. The supply of yen in the market decreases, the currency finds structural support, and it rises.

Meanwhile, the ECB will likely raise rates to 2% before Christmas. That will narrow the differential with Japan to just over one percentage point, a level that no longer justifies capital flows into the euro when global risk sentiment is unstable.

Translation: the classic incentive to finance in yen and buy euros disappears. For the first time in nearly two decades, that strategy ceases to be a one-way street.

Technical analysis: Buy signals of pause

The daily chart of EUR/JPY shows a moderate bullish scenario, but indicators warn of momentum exhaustion.

The price trades above its main moving average )around 161 ¥(, confirming the uptrend since early March. However, recent candles are narrow and cluster near the upper band of the Bollinger channel )resistance at 164.0 ¥(. This is typical of a lack of buying energy.

The channel has narrowed compared to March. When that happens, it often precedes a sharp move. The market is contained, waiting for a reason to explode in one direction or another.

The 14-session RSI is at 56, after touching 67 a week ago. The oscillator moves away from overbought territory and shows a bearish divergence with the May 1 high. This reinforces the idea of an imminent pause or correction.

Support levels: The moving average )162.5 ¥( is the first cushion. Further down, the confluence of the lower Bollinger band and the moving average around 161 ¥. Losing that level opens the door to 159.8-160 ¥.

Resistance levels: The 164.2 ¥ high remains key. A clear close above would encourage a move toward 166-168 ¥.

Analyst forecasts: Consensus forms

Different analysis portals agree that EUR/JPY will close 2025 in the 160-170 ¥ territory:

• LongForecast: 165-173 ¥
• CoinCodex: 166.08-171.94 ¥
• Traders Union: 165.64 ¥
• Bankinter: 160-170 ¥

Methodologies vary )some offer monthly ranges, others annual; some are more conservative(, but the consensus is clear: the euro ends the year between a floor of 160 ¥ and a ceiling of 173 ¥, with the core probability around 162-165 ¥.

Investment strategies: How to play the pair in 2025

For the next 3-6 months:

The pair has been oscillating in a 160-170 channel since the beginning of the year. Whenever it approaches the upper zone )165-170 ¥(, it makes sense to reduce euros and buy yen, targeting 162 ¥ with a disciplined stop above 171 ¥. The days before Bank of Japan meetings often generate quick swings of 1-2 yen. Active traders can take advantage of these with small futures or put option spreads that lower the premium.

For year-end 2025:

Forecasts converge on 160-170 ¥, so a prudent tactic is to accumulate yen gradually. Buy each time the pair exceeds 163-164 ¥, averaging the entry price and reducing the risk of a poor entry.

If you need to hedge euro cash flows, you can lock in forwards or deposits in yen near current levels. The cost of this hedge decreases as the yield differential narrows, making the operation more attractive.

When to take profits:

If the pair approaches 160-162 ¥ after the expected Bank of Japan rate hikes in summer and autumn, take at least part of the gains. Leave the rest as protection against geopolitical shocks that historically favor the yen.

Risks that could change everything

An unexpected turn by the Bank of Japan if Japanese inflation subsides could halt the yen’s rally. An unforeseen rise in European core inflation that halts ECB rate cuts would have the opposite effect. A prolonged stock rally reviving carry trade would push the pair back toward the upper range )167-170 ¥(.

Keep clear stops and review your exposure after each central bank meeting. Commercial risks are equally critical: if a new round of tariffs between the US and the EU sparks volatility, the yen )safe-haven currency( would take the lead and push the pair toward 158-160 ¥. Conversely, any easing would allow rebounds toward 167-168 ¥.

The baseline scenario: EUR/JPY near 162 ¥ at year-end

Considering all factors — monetary cycle change, narrowing yield gap, yen’s recovery as a safe haven, but without a crisis pushing it to record highs — the most likely scenario is a pair close to 162 ¥ at the end of 2025.

The probable range is broad but very gradual downward: 158-170 ¥. On calm days and risk appetite, the euro-yen quote could resist above 165 ¥. In shocks )strong US inflation data, new tariffs, stock corrections(, the yen would regain its safe-haven role and pressure toward 158-160 ¥.

The balance slightly favors a stronger yen if the Bank of Japan confirms its rate hike cycle continues into 2026. For the first time in nearly two decades, carry trade is no longer a one-way path, pointing to a gradual downward trend for EUR/JPY for the rest of the year.

Conclusion: The time to buy yen has arrived

Forecasts converge: EUR/JPY will close 2025 in a range of 158-170 ¥, reflecting the monetary cycle shift. The Bank of Japan ends free money, the ECB cuts rates, and the yield gap narrows from two points to just over one.

It’s a good time to patiently build a yen position. Rebounds toward 165-170 ¥ offer reasonable entry points with targets at 160-162 ¥ and stops at 171 ¥. The risk is manageable, and the structural bias favors the Japanese currency.

For the first time, the game has changed rules. The yen is no longer the cheap currency of an infinite carry trade. It is, once again, what it should always have been: a trusted refuge in times of global uncertainty.