EUR/JPY 2025: Exchange rate dynamics between Japanese recovery and European weakness

The EUR/JPY pair has experienced notable volatility in 2025, reflecting two opposing monetary dynamics: while the Bank of Japan accelerates its tightening cycle, the European Central Bank leans toward easing its policy. This divergence redefines how many yen equal one euro in a context where the incentives structure for carry trades is collapsing.

The drivers of change: monetary policy versus risk aversion

The pair started 2025 around 161.7 ¥ per €, experiencing sharp oscillations that reached a low of 155.6 ¥ on February 27 and a high of 164.2 ¥ on May 1. Today, it trades around 163.4 ¥. These movements are driven by two opposing forces.

On one side, Japanese monetary tightening boosts demand for yen. The BoJ raised its benchmark rate from 0.25% to 0.50% in January, the highest since 2008. Although the initial reaction was bullish for the Japanese currency, the momentum quickly faded: European yields remained significantly higher than Japanese yields, maintaining the attractiveness of the rate differential.

On the other side, the ECB has implemented three rate cuts since late January (January 30, March 12, and April 17), reducing rates from 4% to 2.25%. Each downward adjustment compressed euro rebounds, gradually eliminating the yield premium that compensated for exchange rate risk.

The role of the yen as a safe-haven currency

True volatility arises when geopolitical and trade factors converge. The announcement of US tariffs in February (10% general, 20% additional for EU imports) triggered a massive search for safe assets, causing the pair to drop to 155.6 ¥.

The yen has characteristics that make it the natural destination during turbulence: Japan is a large global net creditor, its economy does not depend on external financing, and its foreign exchange market is extraordinarily deep and liquid. Additionally, historically many traders finance risk positions in yen; when conditions deteriorate, they close those positions and buy yen, amplifying its appreciation.

The effect reversed when China injected monetary stimulus in May, lowering its 7-day repo rate to 1.40% and easing bank reserve restrictions. This reactive boost to risk appetite in Asian markets led traders to abandon their safe-haven yen purchases, and the pair rose to 164.2 ¥.

Projection for the end of 2025: structure versus shocks

From now until the end of the year, two dynamics will compete to determine how many yen are equal to one euro.

The structural outlook supports a stronger yen. Market curves anticipate that the BoJ will raise its rate to 0.75% in summer and to 1.00% in autumn. Although incremental, each step erodes the profitability of borrowing in cheap yen to invest in higher-yield assets. The supply of yen decreases, establishing a structural floor for the currency.

In the eurozone, the opposite occurs. With inflation easing and growth stagnating due to US tariffs, the ECB will likely raise its rate to 2.00% before Christmas. This move will compress the yield differential with Japan to just over 1.00%, insufficient to compensate for capital repatriation risk during periods of global instability.

The baseline scenario places EUR/JPY near 162 ¥ at year-end, with an operational range between 158-165 ¥. During calm periods and bullish sentiment, resistance should be above 165 ¥. In case of any US inflation shock, new tariffs, or stock market correction, the yen will regain its defensive role, and the pair will approach the 158-160 ¥ zone.

Technical reading: relative exhaustion at highs

The daily chart shows a moderate bullish bias since early March, with the price trading above its main moving average (≈161 ¥). However, momentum indicators reveal signs of fatigue.

Recent candles show narrow bodies clustered near the upper edge of Bollinger Bands (maximum at 164.0 ¥), a classic sign of lack of additional buying push. The 14-session RSI has fallen from 67 last week to 56 currently, leaving overbought territory and forming a bearish divergence relative to the May 1 high.

Immediate support is at the Bollinger middle (162.5 ¥), and further below, around 161 ¥ where the lower band converges with the moving average. Losing this level would open the door to 159.8-160 ¥. Key resistance remains at 164.2 ¥; a confirmed close above this level would stimulate moves toward 166-168 ¥.

Forecasts from different analysts

Major financial institutions have published projections for EUR/JPY that converge within specific bands:

• LongForecast: 165 to 173 ¥
• CoinCodex: 166.08 to 171.94 ¥
• Traders Union: 165.64 ¥ (single value)
• Bankinter: 160 to 170 ¥

These forecasts differ in methodology but converge around the 160-170 ¥ zone, reflecting consensus on the expected operational range for 2025.

Investment tactics based on time horizon

Short-term (3 to 6 months)

The pair has moved within a 160-170 ¥ corridor during 2025. Each approach toward 165-170 ¥ presents an opportunity to sell euros and buy yen with an initial target at 162 ¥. Active traders can capitalize on quick oscillations that typically precede BoJ meetings (movements of 1-2 yen) using small-sized futures or put-spread options that reduce initial premiums.

Medium-term (end of 2025)

Projections converge at 160-170 ¥, while some more bullish algorithmic models set caps at 170-173 ¥. A prudent tactic is to accumulate yen in tranches, buying whenever EUR/JPY exceeds 163-164 ¥, allowing for an average entry price and reducing concentrated risk.

Those needing to hedge euro cash flows can lock in forwards or deposits in yen near current levels; the cost of hedging decreases as the interest rate differential narrows.

Profit-taking and risk management

If the pair approaches 160-162 ¥ after the BoJ’s expected hikes in summer and autumn, it’s advisable to take at least part of the long yen positions, leaving the rest as protection against geopolitical shocks that historically favor the Japanese currency.

Main risks and alternative scenarios

Monetary pause risk: If Japanese core inflation unexpectedly declines, the BoJ could pause its rate hike cycle, removing the yen’s structural support.

European inflation resurgence: An unforeseen inflation spike in the Eurozone could halt ECB rate cuts and attract capital into euros, pushing EUR/JPY toward the upper end of the range.

Carry trade recovery: A prolonged stock rally could reactivate the yen-denominated borrowing strategy to invest in higher-yield assets, pushing the pair toward 167-168 ¥.

Trade escalation: A new round of tariffs between the US and the EU would boost demand for yen as a safe haven, pushing EUR/JPY toward 158-160 ¥.

Trade détente: Any sign of trade relaxation would have the opposite effect, allowing rebounds toward 167-168 ¥.

Historical context: two decades of divergences

Since its inception in 1999, EUR/JPY has reflected the relative strength of the yen during crises (2008, European debt crisis 2010-2012) versus periods of European-global expansion that favored the euro. Divergent monetary policies between BoJ and ECB have always been decisive.

Today, we are at a turning point: for the first time in nearly two decades, carry trades are no longer a one-way street. The reduction of rates in Europe combined with tightening in Japan reverses the equation that has dominated the market since the financial crisis.

Conclusion: an opportunity window

Projections for EUR/JPY converge at 158-160 ¥ as the 2025 closing target. The market is finally digesting the cycle change: the BoJ is abandoning near-zero interest rates while the ECB lowers its benchmark rate.

The yield differential, which a year ago was around two percentage points, will fall below 1.00%, removing the classic incentive to finance cheaply in yen and invest expensive in euros. Adding the yen’s safe-haven factor during trade turbulence, the structural bias favors a gradual downward trend for the pair.

With EUR/JPY bouncing between 160 and 170 ¥, the optimal moment to build long yen positions is during rebounds toward 165-170 ¥, with an initial target of 160-162 ¥ and a disciplined stop at 171 ¥. The question of how many yen are equal to one euro now has an answer that improves for those betting on the Japanese currency: less each quarter, but in a controlled manner and vulnerable to geopolitical shocks.