EUR/JPY 2025: Buy Yen Now? Analysis of the Battle Between Monetary Policies

The euro-yen cross faces its most important inflection point in years in 2025. While the Bank of Japan accelerates its rate hike cycle and the ECB is forced to cut rates, the yield gap that for years favored the euro is collapsing. This cycle change opens a window to rethink yen positions but requires understanding what truly moves this currency pair.

The five catalysts that have defined 2025

The volatility of EUR/JPY so far this year is no coincidence. It started near 161.7 ¥ per €, plunged to 155.6 ¥ on February 27, and rebounded to a high of 164.2 ¥ on May 1. In just four months, the range exceeded eight yen, reflecting a constant battle between contradictory forces.

The first major move came in January when the Bank of Japan raised its benchmark rate from 0.25% to 0.50%, the highest since 2008. The effect was immediate: the yen strengthened sharply. But the strength was fleeting because European yields remained well above, maintaining pressure on the Japanese currency.

In February, Washington announced broad tariffs of 10% on imports and an additional 20% on goods from the EU. Geopolitical fears spiked demand for safe assets, and the pair plummeted. The yen, by its nature as a safe-haven currency, attracted risk-averse capital. Japan is a global net creditor with no dependence on external financing, and its foreign exchange market is highly liquid, making it the preferred destination when investors need to flee risk.

The third factor was the announcement of US tariffs coming into effect in April. However, markets had already priced them in, so the impact was limited, with the cross oscillating between 158 ¥ and 161 ¥.

Meanwhile, the European Central Bank cut rates on January 30, March 12, and April 17, lowering the deposit facility from 4% to 2.25%. Each move weakened euro rebounds by reducing incentives to hold the common currency.

The fifth catalyst arrived in May: Chinese monetary stimulus injecting liquidity into Asian markets, reviving risk appetite. Investors stopped seeking refuge in yen, and the euro-yen cross quickly rose toward 164.2 ¥.

Why the yen regains its safe-haven role

The appreciation of the yen is not mainly due to yield differentials but to risk perception. When uncertainty dominates, many investors close yen positions borrowed at near-zero rates, return the money, and buy the Japanese currency. This reverse carry trade amplifies movements.

The yen market is so deep and liquid that it allows massive operations without price disruptions, unlike other Asian currencies. In moments of panic, this feature makes it the preferred destination.

The dynamics that will define the coming months

Looking ahead, the market curve anticipates the Bank of Japan will raise its rate to 0.75% in summer and to 1.0% in fall. Each hike further compresses the carry trade, reducing yen supply in markets.

In the eurozone, the scenario is opposite. With inflation falling and growth weakened by tariffs, the ECB will likely raise its rate to 2.0% before year-end. This will narrow the Japan-Eurozone yield differential to just over one percentage point, an insufficient level to offset the risks of capital reallocation when the global climate becomes unstable.

The most probable outcome is a pair trading within a wide range but with a downward bias. During stock market calm and risk appetite recovery, the euro should face resistance above 165 ¥. When a shock occurs—(strong US inflation, new tariffs, stock market corrections)—the yen will regain its protective role, and the pair could fall toward 158-160 ¥.

The baseline scenario points to a close of 2025 near 162 ¥, with a slight advantage toward a stronger yen if the Bank of Japan confirms continued hikes into 2026.

Technical reading of the cross

The daily EUR/JPY chart maintains a moderate bullish bias but shows signs of exhaustion. The price remains above its main moving average (approximately 161 ¥), confirming the uptrend since March. However, recent candles show narrow bodies clustered near the upper band of the Bollinger channel (top at 164.0 ¥, center at 162.5 ¥), a classic sign of lacking additional buying momentum.

The Bollinger channel has contracted compared to March, which historically precedes sharp moves when the range expands again. The 14-session RSI is at 56 after touching 67 a week ago. The indicator is exiting overbought territory and shows a bearish divergence with the May 1 high, signaling a pause or correction in the short term.

Immediate supports are at the Bollinger middle (162.5 ¥) and further down at the confluence of the lower band with the moving average, around 161 ¥. Losing this level would open doors toward 159.8-160 ¥. On the upside, the critical resistance remains at 164.2 ¥; a clear close above would encourage moves toward 166-168 ¥.

Consensus forecasts for 2025 close

Different specialized portals project varying ranges based on their methodologies:

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

The dispersion reflects different analytical approaches, but all projections converge in the 160-173 ¥ zone, with a focus on 162-167 ¥.

Yen investment strategies: from short to long term

3-6 months trading

The cross has oscillated since the beginning of the year within a 160-170 ¥ channel. Each approach toward 165-170 ¥ offers opportunities to sell euros and buy yen, with targets at 162 ¥ and disciplined stops above 171 ¥. The days before Bank of Japan meetings generate quick volatility of 1-2 yen; active traders can take advantage with small-sized derivatives.

Position building until year-end

Projections from banks converge on 160-170 ¥, while more optimistic models reach 170-173 ¥. A prudent tactic is to accumulate yen in tranches: buy whenever the cross exceeds 163-164 ¥, averaging the price and reducing the risk of a single entry. Those needing euro cash flow hedges can set forwards or yen deposits near current levels, with costs decreasing as the yield differential narrows.

Taking profits

If the cross retreats to 160-162 ¥ after the Bank of Japan hikes scheduled for summer and fall, it’s advisable to execute at least part of the positions, leaving residual exposure as protection against geopolitical shocks that historically favor the yen.

Risks to monitor

An unexpected pause by the Bank of Japan if Japanese internal inflation subsides, or a surprise rebound in core inflation in the eurozone that halts the ECB, could push the cross back to the upper part of the 165-170 ¥ range. A prolonged stock rally would renew the traditional carry trade, pushing the pair upward.

Trade risks remain relevant. A new round of tariffs between the US and the EU would push the safe-haven yen toward 158-160 ¥, while any gesture of détente could lead to rebounds toward 167-168 ¥.

Maintaining clear stops and reviewing exposure after each central bank meeting remains essential.

Historical context: 25 years of EUR/JPY

Since its inception in 1999, the euro-yen pair has witnessed the yen’s strength during crises and euro volatility amid European challenges. The 2008 financial crisis strengthened the yen as a refuge while the euro depreciated due to eurozone instability. The subsequent recovery and expansionary policies of the Bank of Japan favored a gradual euro appreciation over 15 years.

Today, with the Bank of Japan raising rates and the ECB cutting, the pair is again trading between 160-165 ¥. The balance of power has shifted: it is the era of the yen reclaiming its protective role against a euro pressured by European slowdown.

Conclusion: a rare window to position in yen

Forecasts for EUR/JPY at the end of 2025 point to a range of 158-170 ¥, with a focus on 160-167 ¥. For the first time in nearly two decades, yield arbitrage no longer favors the euro unidirectionally. The Japan-eurozone rate gap, which was around two percentage points a year ago, will converge to just over one, eliminating the classic carry trade incentive.

Added to this is the safe-haven role of the yen amid rising trade tensions. The pair continues bouncing between 160 ¥ and 170 ¥, offering windows to buy yen on rebounds toward 165-170 ¥, targeting 160-162 ¥ as objectives and maintaining risk control at 171 ¥.

The structural bias has definitively shifted in favor of the yen. The next six months will determine whether this revaluation is a temporary episode or the start of a longer-term trend. For patient and disciplined investors, 2025 presents the first opportunity in years to build defensive positions with moderate appreciation expectations and well-defined risk limits.