2025 Euro to Japanese Yen (EUR/JPY) Investment Guide: Why Now Is the Right Time to Buy Yen

Major Shift in Central Bank Policies: Structural Support for Yen Appreciation

Since early 2025, the EUR/JPY movement has exceeded 8 percentage points, soaring from the beginning of the year at 161.7¥ to a yearly high of 164.2¥, then retreating to around 163.4¥. Behind this volatility is a fundamental shift in global central bank policies.

The Bank of Japan has finally started to raise interest rates. Starting in January, the BoJ increased its benchmark rate from 0.25% to 0.50%, reaching the highest level since 2008. Although the increase in absolute terms is modest, it marks the end of Japan’s long-standing “zero interest rate era.” Market expectations are for the BoJ to continue raising rates to 0.75% in summer and further to 1% in autumn.

Meanwhile, the European Central Bank (ECB) is doing the opposite. Facing slowing growth and falling inflation in the Eurozone, the ECB implemented three rate cuts in January, March, and April, lowering deposit facility rates from 4% to 2.25%. Further reductions to 2% are expected by year-end.

This creates a classic narrowing interest rate differential: Japanese rates rise, Eurozone rates fall, shrinking the original 2-percentage-point spread to below 1%. When the interest rate differential is no longer attractive, the long-standing “carry trade” that kept the yen suppressed loses its appeal, initiating a structural yen appreciation cycle.

Geopolitical Risks Resurface: Yen as a Safe Haven Reemerges

In addition to the policy shifts, geopolitical tensions and trade tensions have repeatedly driven yen appreciation.

In February, US tariff threats caused market panic: Washington announced a 10% tariff on all imports, with an additional 20% on EU goods. This news triggered a rush to risk-off assets. Investors flocked to safe-haven assets, and the yen surged due to its liquidity and safety attributes, with EUR/JPY falling to a yearly low of 155.6¥.

This is no coincidence. Historically, whenever global risk events occur, the yen tends to strengthen:

• Japan, as the world’s largest creditor nation, has stable financial conditions
• Japan does not rely on foreign capital inflows, enhancing its risk resilience
• The yen market is large and highly liquid, making it the easiest Asian currency to trade quickly

When uncertainty reemerges, investors actively sell risk assets and repay yen-denominated loans, pushing the yen higher. This dynamic has played out repeatedly in 2025.

The Euro’s Dilemma: Sluggish Growth and Policy Constraints

Compared to the yen’s strength, the euro faces multiple pressures.

US tariff policies pose a direct threat to EU manufacturing. Economic growth shows signs of weakness, and while inflation is falling, it remains above the ECB’s target. Against this backdrop, the ECB has no choice but to continue cutting rates to stimulate the economy. Each rate cut further depresses the euro, as lower interest rates reduce the attractiveness of euro-denominated assets.

This creates a “vicious cycle”: weak economy → rate cuts → euro depreciation → improved export competitiveness but capital outflows → need for more rate cuts to stimulate.

In contrast, Japan’s economy, though not particularly strong, benefits from the central bank’s rate hikes as a sign of policy confidence, implying relatively stable growth prospects.

Short-term Disruptions from China’s Stimulus Policies

It’s worth noting that in May, China’s central bank released liquidity (7-day repo rate fell to 1.40%), temporarily boosting risk appetite, which pressured the yen and caused EUR/JPY to rebound to 164.2¥. But such rebounds are often fleeting, driven by temporary market sentiment improvements rather than fundamentals. When new geopolitical risks or economic data emerge, the yen’s safe-haven appeal will reassert itself.

Investment Opportunities in the Second Half of 2025

Based on the above analysis, the EUR/JPY trading range in the second half of the year is expected to fluctuate between 158¥ and 165¥:

Upper boundary (165-170¥): When global risk appetite improves and stocks rebound, carry trades will temporarily revive, putting pressure on the yen, and EUR/JPY may spike into this zone.

Lower boundary (158-160¥): If trade tensions worsen, US inflation data exceeds expectations, or stocks decline, yen safe-haven demand will surge, pushing the euro lower.

Baseline expectation: around 162¥. This reflects a scenario where the interest rate differential narrows but remains, and geopolitical risks exist but have not fully erupted — a balanced “compromise” state.

Practical Investment Strategies

Short-term traders (3-6 months):

• When EUR/JPY approaches 165-170¥ highs, sell euros and buy yen, targeting 162¥
• Before BoJ meetings, watch for rapid 1-2 percentage point swings, using futures or options to capitalize
• Set stop-loss above 171¥ and enforce strictly

Medium-term holders (until year-end):

• Gradually build long yen positions rather than all at once
• Each time EUR/JPY rises to 163-164¥, buy yen in tranches
• This helps average costs and diversify risk
• Use forward contracts or yen time deposits to lock in current rates for liquidity needs

Profit-taking triggers:

• If BoJ hikes as expected and EUR/JPY falls to 160-162¥, consider taking at least partial profits
• Keep some positions open as a hedge against geopolitical risks, which always exist

Key Risks

Despite the clear outlook for yen appreciation, the following risks should not be overlooked:

Central bank policy reversal risk: If the BoJ halts rate hikes due to unexpectedly falling inflation, or if Europe’s inflation rebounds, narrowing the interest differential process could be interrupted.

Trade tensions easing: If the US and EU reach an agreement on tariffs, risk assets will rebound sharply, and the safe-haven value of the yen will evaporate quickly, with EUR/JPY potentially soaring to 167-168¥.

Stock market rally: Continued strength in global equities could reignite carry trades, with investors borrowing yen to chase higher-yield assets, depressing the yen.

The response is to set clear stop-loss points and review position sizes after each central bank meeting.

Historical Context and Market Psychology

Since its inception in 1999, EUR/JPY has reflected the policy divergence between the two major economies. During the 2008 financial crisis, the yen surged due to its safe-haven status; in the early 2010s, during Europe’s debt crisis, the euro was under heavy pressure. But in recent years, Europe’s recovery combined with Japan’s easing has repeatedly pushed the euro higher.

2025 marks a reversal of this long-term pattern. The Bank of Japan has finally begun an interest rate hike cycle, while Europe is caught in a growth trap and forced to continue easing. This is the first time in nearly two decades that the yen has fundamentally regained ground.

Final Conclusion

Now is the golden time to position for yen appreciation. The combination of narrowing interest rate differentials, policy divergence, and persistent geopolitical risks provides a solid foundation for the yen’s medium-term rise.

In 2025, EUR/JPY is most likely to fluctuate within 158-170¥, with an equilibrium around 162¥ by year-end. Investors can consider establishing yen positions when EUR/JPY exceeds 165¥, aiming for an initial profit target of 160-162¥, with strict stops above 171¥.

Patience and discipline are key: avoid chasing highs, build positions gradually, and review regularly. Under the dual influence of policy shifts and geopolitical tensions, the yen’s spring has arrived.