The EUR/JPY pair is gaining strength to around 183.50 during early European trading hours on Tuesday. The Japanese Yen (JPY) is weakening against the Euro (EUR) due to uncertainty about the timing of the next interest rate hike by the Bank of Japan (BoJ) and a positive risk tone.
Bank of Japan Governor Kazuo Ueda said Monday that interest rate increases will continue if economic and price trends are consistent with the central bank’s expectations for a sustainable inflation cycle. Most analysts expect the next increase around mid-year, after Shuntu wage negotiations in the spring confirmed strong wage increases.
On the euro front, the European Central Bank kept interest rates unchanged at its December policy meeting, and its expectations indicate a declining need for further cuts. This, in turn, may provide some support to the Euro against the Japanese Yen. Economists widely expect the European Central Bank to continue keeping interest rates steady until 2026.
Technical analysis:
On the daily chart, EUR/JPY is holding well above the bullish 100-day moving average at 178.25, maintaining a strong bullish bias. The long-term average continues to rise, while the short-term average converges with the spot price, indicating equilibrium after a strong rally. The price is located at the middle Bollinger band where the bands narrow, indicating reduced volatility and a halt to the trend. Relative Strength Index at 55.91 points indicates moderate upward momentum. The bullish focus is at the upper band near 185.00, while initial support is the lower band at 181.87.
The uptrend structure remains intact with the averages slanted upward, suggesting that declines towards the 100-day EMA at 178.25 will be supported. A contraction in the Bollinger Bands sets the context for the breakout, and a decisive push away from the middle band will determine the next stop. Momentum is neutral to positive on the RSI, and further improvement would strengthen the bullish bias. A close above 185.01 may extend gains, while a break below 181.87 will expose a downtrend towards 178.25.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most widely traded currencies in the world. Their value is determined broadly by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the spread between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the powers of the Bank of Japan is to control the currency, so its movements are key to the yen. The Bank of Japan has intervened directly in currency markets on occasion, generally to devalue the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The Bank of Japan’s ultra-loose monetary policy between 2013 and 2024 caused the yen to depreciate against its major counterparts due to the growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual dismantling of this ultra-lenient policy has given the yen some support.
Over the past decade, the Bank of Japan’s ultra-loose monetary policy stance has led to widening policy divergence with other central banks, especially the US Federal Reserve. This supported the widening of the spread between the US and Japanese 10-year bonds, which favored the US dollar against the Japanese yen. The Bank of Japan’s decision in 2024 to gradually abandon ultra-loose policy, along with interest rate cuts at other major central banks, are narrowing this spread.
The Japanese yen is often viewed as a safe investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency because of its supposed reliability and stability. Turbulent times are likely to strengthen the value of the yen against other currencies that are considered riskier to invest in.
