EUR/JPY Price Forecast: Holds gains above 185.00, bullish momentum prevails

EUR/JPY gathers strength around 185.20 in Tuesday’s early European session.
Uncertainty over the likely timing of the next rate hike by the BoJ weighs on the Japanese Yen.
The cross keeps the constructive outlook above the key 100-day EMA, with a bullish RSI indicator.
The initial support level to watch is 183.77.

Lallalit Srijandorn FXStreet

The EUR/JPY cross trades in positive territory for the third consecutive day near 185.20 during the early European session on Tuesday. The Japanese Yen (JPY) weakens against the Euro (EUR) amid political uncertainty in Japan after a report that Japan’s Prime Minister Sanae Takaichi may call an early general election in the first half of February.

Furthermore, the lack of clear guidance on the timing of future interest rate hikes by the Bank of Japan (BoJ) could undermine the JPY and act as a tailwind for the cross. Markets view the BoJ's approach to ending its ultra-loose monetary policy as very cautious and slow.

However, verbal intervention from Japanese authorities might cap the downside for the JPY in the near term. Japan’s Finance Minister Satsuki Katayama said on Tuesday that she is concerned about the JPY’s one-sided decline with US Treasury Secretary Scott Bessent and added that the tolerance for weakness was limited.

Technical Analysis:

In the daily chart, EUR/JPY holds well above the rising 100-day EMA at 178.68, keeping the medium-term uptrend intact. The positive slope of the average supports trend continuation. RSI at 66.82 is advancing, confirming firm bullish momentum without overbought conditions. Spot has nudged above the upper Bollinger Band at 185.15, indicating stretched upside. The bands have narrowed in recent sessions, reflecting reduced volatility and could precede a breakout or mean reversion.

If momentum fades, initial support aligns with the middle Bollinger Band at 183.77, with the lower band at 182.40 as the next cushion. A push above 70 on the RSI would tilt conditions into overbought and could trigger a pullback toward the mean. The distance to the 100-day EMA offers a deeper floor for the trend if a correction unfolds. Sustained acceptance above the envelope would keep the topside path open and maintain buyer control.

(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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