EUR/JPY 2025: Investment Strategy Amid the Gradual Shift from Yen to Euro

Throughout 2025, the EUR/JPY cross has experienced sharp movements reflecting profound changes in global monetary policy. The accumulated volatility in just four months—from 161.7 ¥ in January to a high of 164.2 ¥ in May—reveals how the yen-to-euro exchange responds less to cyclical differences than to structural shifts in normalization cycles. Understanding these changes is essential to decide whether now is the time to build positions in yen.

The five drivers of volatility in 2025

Interest rate hikes in Tokyo

The Bank of Japan raised its official interest rate from 0.25% to 0.50% in January, the highest level since 2008. This move would strengthen the yen immediately, but the impact dissipated within days. The reason was simple: European yields remained well above Japanese yields, maintaining the euro’s attractiveness. With projections of further increases toward 0.75% in summer and 1% in autumn, the Bank of Japan is dismantling the carry trade strategy that for years pressured the yen toward weakness.

US tariffs and risk aversion

When Washington announced its general 10% tariff on imports and an additional 20% on goods from the EU, the market panicked and sought refuge. The EUR/JPY pair plummeted to 155.6 ¥ on February 27—its annual low—because investors sold risk assets and bought yen. This pattern repeated whenever trade tensions resurfaced, demonstrating the yen’s capacity to act as an anchor during times of uncertainty.

The yen as a structural safe-haven currency

Japan is a global net creditor that does not depend on external flows, generating natural institutional confidence. Additionally, many investors finance yen operations when risk appetite prevails; at signs of alarm, they liquidate these positions and buy yen, pushing its quote higher. The depth and liquidity of the Japanese foreign exchange market make it the most accessible Asian currency for large transactions when volatility surfaces.

Interest rate cuts in the Eurozone

The European Central Bank reduced its deposit facility from 4% to 2.25% in three steps (30 January, 12 March, and 17 April). Each cut weakened euro rebounds, eroding its yield advantage. Recent projections suggest the institution will bring rates down to 2% before Christmas, when inflation data confirm deceleration.

Chinese stimulus and risk-on revival

In May, Beijing injected liquidity by lowering its 7-day repo rate to 1.40% and easing reserve requirements. This boost revitalized Asian stock markets and reactivated risk appetite, encouraging investors to abandon safe-haven positions. The yen weakened, allowing EUR/JPY to climb to 164.2 ¥ on May 1.

Yen to euro shift: divergence in monetary policies

The 2025 dynamic shows a clear pattern: when fear dominates, the yen appreciates; when market sentiment improves, the yield differential favors the euro again. However, this differential is closing rapidly.

Tokyo is discounting gradual hikes that would bring the reference rate to 1% in autumn. Although not a drastic shift, it is enough to penalize the carry trade, reducing yen supply in the market and providing structural support to the currency. Brussels, on the other hand, faces declining inflation and growth trapped by tariffs, justifying cuts to 2% before year-end. The result will be a compressed yield differential of just over one percentage point—historically insufficient to compensate for flow risks in euros when the global climate worsens.

Technical analysis: early weakness patterns

The daily EUR/JPY chart maintains a moderate upward trend since early March, but fatigue signals are clearly emerging. The price trades above the main moving average (161 ¥), confirming the current direction, although recent candles are narrow-bodied and cluster near the upper limit of the Bollinger band (band at 164.0 ¥; average at 162.5 ¥). This volatility compression anticipates a sharp move when the range expands again.

The 14-session RSI stands at 56 after reaching 67 a week ago, leaving overbought territory and forming a bearish divergence with the May 1 high (164.2 ¥). This behavior suggests a pause or short-term correction is likely.

Immediate supports are at the Bollinger moving average (162.5 ¥) and further down at the confluence of the lower band with the moving average, around 161 ¥. A break below 161 ¥ would open the door to 159.8-160 ¥. The key resistance remains at 164.2 ¥; a clear close above would encourage a move toward 166-168 ¥.

Converging forecasts for yen to euro exchange

Specialized portals’ projections differ in methodology but converge in ranges:

• LongForecast: 165–173 ¥ (December 2025)
• CoinCodex: 166.08–171.94 ¥ (annual range algorithm)
• Traders Union: 165.64 ¥ (year-end close)
• Bankinter: 160–170 ¥ (technical band)

Our baseline scenario places the pair around 162 ¥ at year-end, with a slightly bullish bias for the yen if the Bank of Japan confirms its rate hike cycle in 2026.

Is it a good time to position in yen? Tactics by horizon

Short-term (3 to 6 months)

The cross has oscillated between 160-170 ¥ since the beginning of the year. When the quote reaches the 165-170 ¥ zone, it presents an opportunity to sell euros and buy yen, targeting 162 ¥ with disciplined stops at 171 ¥. Active traders can exploit one- or two-yen oscillations before Bank of Japan announcements, using small futures or put-spread options to lower premiums.

Medium-term (year-end 2025)

Projections converge at 160-170 ¥, suggesting yen accumulation in tranches. Buying each time the cross exceeds 163-164 ¥ allows averaging the entry price and reducing risk. Those needing euro hedges can set forwards or yen deposits near current levels; costs decrease as the rate differential narrows.

Profit-taking and risk management

If the pair retraces to 160-162 ¥ after the Bank of Japan’s expected hikes in summer and autumn, it is advisable to realize at least part of the gains, leaving protection against geopolitical shocks that have historically favored the yen. Main risks include an unexpected pause in Tokyo if Japanese inflation cedes, an unforeseen rise in European core inflation that halts ECB cuts, or a prolonged stock rally reigniting carry trades. A new US-EU tariff round would pressure the pair toward 158-160 ¥, while signs of détente could lead to rebounds toward 167-168 ¥.

Historical perspective: from vulnerable euro to resilient yen

Since 1999, EUR/JPY has reflected the yen as a safe haven during crises and euro fluctuations amid European challenges. The 2008 financial crisis strengthened the yen while the euro depreciated due to Eurozone instability during 2010-2012. Recent expansive policies by the Bank of Japan favored a gradual euro appreciation. Today, with Tokyo raising rates and Brussels cutting, the yen-to-euro shift again reflects the tug-of-war between a yen regaining its safe-haven role and a euro pressured by European slowdown.

Conclusion: structural opportunity window

Projections for EUR/JPY at year-end 2025 converge in the 158-170 ¥ range, reflecting a market finally adjusting to the cycle change. The Bank of Japan abandons near-free money while the European Central Bank reduces rates. The yield gap, which was around two points a year ago, will compress to just over one, eliminating the classic carry trade incentive. Coupled with the yen’s safe-haven condition amid trade tensions, the yen-to-euro shift suggests a gradual downward trend for the rest of the year.

With the pair still bouncing between 160-170 ¥, it is a good time to accumulate yen on rebounds toward 165-170 ¥, aiming for 160-162 ¥ as a target, with risk controls at 171 ¥. For the first time in nearly two decades, carry trade is no longer a one-way street, confirming that the structural bias has turned in favor of the yen.