EUR/JPY Price Forecast: Declines to near 185.00, consolidation cannot be ruled out

EUR/JPY edges lower to near 185.00 in Tuesday’s early European session.
Takaichi’s ruling LDP secured a comprehensive victory in Sunday’s election, boosting the Japanese Yen.
The cross keeps the positive view, but consolidation cannot be ruled out in the near term with neutral RSI momentum.
The first upside barrier emerges at 186.28; the initial support level is seen at 184.37.

Lallalit Srijandorn FXStreet

The EUR/JPY cross trades in negative territory around 185.00 during the early European session on Tuesday. The Japanese Yen (JPY) gathers strength against the Euro (EUR) after Prime Minister Sanae Takaichi romped to a landslide victory in Japan's snap election on Sunday.

Takaichi has led the ruling Liberal Democratic Party (LDP) to a historic landslide win. The LDP won 316 of the 465 seats in Japan’s lower house, the first time a single party has secured two-thirds of the chamber since World War II.

Nonetheless, analysts expect the JPY to weaken in the long run, noting the spotlight will soon be on Takaichi's fiscal policies. Takaichi’s vow to accelerate talks on cutting the sales tax on food raises concerns over how Japan will pay for her plans to ramp up defense and other spending. This, in turn, could undermine the JPY and act as a tailwind for the cross.

The Japanese government is set to submit its choice of nominee as early as February 25. The nominee must be approved by both the lower house and upper house of the National Diet. Japan’s Finance Minister stated that the government aims to pass next year’s budget and tax reform as quickly as possible.

Technical Analysis:

In the daily chart, EUR/JPY holds comfortably above the 100-day EMA at 180.62, preserving a firm bullish bias as the average continues to slope higher. Price sits in the upper half of the Bollinger envelope, with the bands showing mild contraction that points to reduced volatility. RSI at 54 (neutral) signals steady momentum. A sustained close above the upper band at 186.28 could extend gains, while a break below the middle band near 184.37 would expose support at the lower band around 182.46.

The 100-day EMA continues to rise beneath price, and pullbacks toward that average would be met by buyers. The Bollinger Bands have flattened modestly after prior expansion, favoring consolidation within the envelope. RSI around 54 remains neutral, leaving room for trend continuation after a pause.

(The technical analysis of this story was written with the help of an AI tool.)

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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