- The EUR/JPY pair dropped over 3.5% in the past three months. This fall reflects weaker European growth and the prospect of tighter monetary policy in Japan
- The yen has gained strength against the euro as rate differentials narrowed. This shift is driven by expectations of a Bank of Japan rate hike and a more cautious stance from the ECB
- To see a significant rebound, the pair would need a sustained break above 178.00, clearer policy signals from either the BoJ or ECB, and important inflation data.
InvestingCube chart · Yahoo Finance data
The euro has had a tough three months against the Japanese yen, with the EUR/JPY exchange rate dropping over 3.5% in the last three months. Since late September, the pair just hasn’t managed to stay above the 178.00 level.
Why Has the Euro Struggled Against the Yen?
Several factors explain the euro’s difficult run against the yen. For one, the yen isn’t nearly as weak as it used to be. While the Bank of Japan still keeps its policy rate at 1.25%, Governor Ueda has hinted that future rate hikes will depend on currency shifts and the geopolitical situation in the Middle East.
On top of that, Japan’s record 15.4 trillion yen spent on interventions this summer has made traders wary of shorting the yen.
Meanwhile, the European Central Bank (ECB) is facing a more complex economic situation. Inflationary pressures, especially from energy prices, mean more rate hikes are still possible.
But worries about economic growth in the Eurozone limit how much the ECB can truly tighten monetary policy. This shrinking difference in interest rates has cut into the euro’s yield advantage, giving the yen a boost.
Risk-off moments have also helped the yen. For instance, the Japanese currency’s safe-haven appeal got stronger during a technology stock sell-off in early November.
Is a Rebound Taking Shape?
Recent trading sessions show some stabilization in EUR/JPY. The pair rebounded from its October lows of about 175.50-176.00, now trading around 177.00-177.50.
This small recovery suggests immediate selling pressure might be easing, but it doesn’t signal a lasting upward trend just yet.
To see a real recovery, the euro would need to hold above 178.00, then push through the next resistance zone around 178.50-180.00. Until it clears these levels, the downtrend from April’s highs will continue.
What Will It Take for the Euro to Regain Its Footing?
To strengthen against the yen, the euro needs a bigger shift. A few things would have to line up for it to break out of its current trend.
If the ECB hikes rates in December, or even signals that it’s coming, that could widen the interest rate gap. ECB President Lagarde has said policy decisions depend on data. Their next meeting is set for December 17.
Traders will also keep a close eye on Japanese wage and inflation data, as they’re big factors in the Bank of Japan’s next policy moves. In Europe, energy prices and economic growth numbers will affect how much more the ECB can tighten policy.
Also, stable equity markets might reduce the yen’s appeal as a safe haven. The yen is a major funding and safe-haven currency. So, global stock market performance and how much risk investors are willing to take will affect capital flows. This could help pairs like EUR/JPY.
Technical factors matter too. A strong close above 178.00 might signal a bigger recovery, but if it drops below recent support levels around 175.50-176.00, that would confirm the current downtrend.
The JPY gained strength and the euro has weakened as interest-rate differences have narrowed. This is because markets anticipate a Bank of Japan rate hike, while the European Central Bank has adopted a more cautious outlook.
ECB and Bank of Japan policies determine yield spreads. These spreads then directly influence how institutional capital moves for this currency pair.
Investors will want to keep an eye on regional inflation updates, GDP releases, and central bank guidance statements. These factors will help them identify what might spark the pair’s next big directional shift.
What is your outlook on EUR/JPY?
Anonymous · no sign-up · results from the last 30 days · not investment advice