EUR/JPY 2025: When is the ideal time to position in yen?

The euro/yen exchange rate continues to mark a crucial inflection point in 2025, with monetary shifts redefining the historical dynamics between both currencies. As the Bank of Japan begins to normalize its policy, the European Central Bank leans toward more easing. This scenario opens windows of opportunity for those who can read the cycles correctly.

Extreme volatility: five months of shocks in EUR/JPY

The pair has taken a rocky path so far in 2025. It started January around 161.7 ¥ per euro, plummeted to 155.6 ¥ on February 27, and rebounded to 164.2 ¥ on May 1, closing the week of May 10 near 163.4 ¥. This range of movement reflects a constant battle between opposing forces pushing the euro/yen exchange rates.

Normalization in Tokyo vs. easing in Europe

The Bank of Japan broke years of ultra-expansive policy by raising its benchmark rate from 0.25% to 0.50% in January, the highest level since 2008. The yen reacted with immediate strength, but the momentum quickly dissipated because European asset yields remained substantially higher, maintaining the incentive to finance in yen and seek profitability in euros.

At the same time, the European Central Bank has cut its deposit rate three times (January 30, March 12, and April 17), lowering it from 4% to 2.25%. With inflation easing in the eurozone and economic activity slowing, each cut eroded euro rebounds, gradually widening the gap in favor of the yen.

Safe haven effect in times of tension

US tariffs announced in February (10% general, 20% additional for the EU) triggered risk asset sell-offs. The yen, as Japan’s safe haven currency— a major global net creditor without external financing dependence— appreciated whenever panic gripped markets. On February 27, EUR/JPY hit a low of 155.6 ¥.

Paradoxically, the Asian yen market is the most liquid and accessible for quick liquidations during crises, making it the natural destination for scared capital. Moreover, legions of traders finance their risk positions in yen (carry trade). When volatility rises, they close these positions and buy yen to repay loans, further pressuring the Japanese currency upward.

Chinese stimulus as a turning point

In May, Beijing injected massive liquidity into its economy by lowering its 7-day repo rate to 1.40% and easing bank reserve requirements. The unleashed optimism boosted Asian markets, restored risk appetite, and weakened yen demand. The result was EUR/JPY jumping to 164.2 ¥ within days.

EUR/JPY forecast: monetary cycles set the script

From now until the end of the year, the euro-yen trajectory will depend almost entirely on how aggressive the Bank of Japan is in normalizing, while the ECB continues to slow down its rate hikes.

Markets expect BoJ to reach 0.75% in summer and 1% in fall. Each increase reduces the profitability of the carry trade—that ancient strategy of borrowing yen cheaply, converting to expensive euros, and pocketing the difference. When the BoJ raises rates, yen supply in the market contracts because borrowing in that currency becomes less attractive, providing structural support.

Meanwhile, the European Central Bank is likely to cut rates to around 2% before Christmas. The euro/yen yield differential, which was about two points a year ago, will narrow to just 1.25 percentage points. That margin no longer justifies the risk of holding euros when geopolitical tensions become unstable. That’s why euros tend to weaken against the yen in nervous contexts.

Trading range and plausible scenarios

The pair should move within a broad downward band. When markets breathe easy and signals of growth proliferate, EUR/JPY will face resistance above 165 ¥. Each inflation surprise in the US, new trade tariff, or stock correction will send the yen back to its safe haven role, pulling the pair toward the 158-160 ¥ zone.

The baseline scenario for 2025 places EUR/JPY near 162 ¥, with a bias toward a slightly stronger yen if the BoJ confirms the continuation of its normalization cycle in 2026. Investment bank projections converge between 158 and 173 ¥ depending on methodology, reflecting this uncertainty within wide bands.

Technical analysis: signals of pause in the bullish momentum

The daily chart of EUR/JPY maintains a moderate bullish bias since early March, with quotes above the main moving average (around 161 ¥). However, momentum shows signs of exhaustion. Recent candles are narrow-bodied clustered at the upper edge of the Bollinger channel (resistance at 164.0 ¥; moving average at 162.5 ¥), indicating weakening buying pressure.

The channel has narrowed since March, hinting at a more abrupt move when it expands again. The Relative Strength Index (RSI) stands at 56 after touching 67 last week, leaving the overbought zone and forming a bearish divergence with the May 1 high (164.2 ¥). This suggests a correction or consolidation in the short term.

Key supports are at the Bollinger middle band (162.5 ¥) and, further down, at the confluence of the lower band and the moving average around 161 ¥. Losing that level would open doors toward 159.8-160 ¥. Resistance remains at 164.2 ¥; a definitive close above would invite moves toward 166-168 ¥.

Investment strategies: three timeframes

Short-term (3-6 months)

The pair has oscillated between 160 and 170 ¥ since the start of the year. Each approach to the upper zone (165-170 ¥) offers opportunities to sell euros for yen, with the first target at 162 ¥ and disciplined stops above 171 ¥. The days before Bank of Japan meetings generate quick moves of one or two yen; active traders can take advantage with small-sized derivatives.

Medium-term (until end of 2025)

A prudent tactic is to accumulate yen in steps: buy each time EUR/JPY exceeds 163-164 ¥, averaging the entry price and reducing the risk of a single entry point. Those needing euro cash flow hedging can set forwards or yield-bearing deposits in yen near current levels; the cost decreases as the yield differential narrows.

Take profit

If the pair falls toward 160-162 ¥ after the BoJ hikes expected for summer and fall, it’s advisable to liquidate at least part of the position, leaving the rest as protection against possible geopolitical shocks that historically benefit the yen.

Risks to monitor

An unexpected pause by the Bank of Japan due to declining Japanese inflation, an unforeseen rebound in European core inflation that halts ECB cuts, or a prolonged stock rally that fuels carry trade could send EUR/JPY back to the top of the range (167-170 ¥).

Conversely, a new round of tariffs between the US and the EU would push the safe haven yen toward 158-160 ¥, while any gesture of trade détente could lead to rebounds toward 167-168 ¥. Disciplined stop management and review after each central bank decision remain essential.

Historical perspective: The yen as a crisis mirror

Since 1999, EUR/JPY has shown how the yen strengthens during turbulence (2008 crisis, European instability 2010-2012) while losing ground during expansions. Divergences in monetary policy between the two central banks have constantly shaped this dynamic. Today, with the BoJ normalizing and the ECB easing, the pair again navigates the 160-165 ¥ zone, reflecting the struggle between a yen regaining safe haven credibility and a euro pressured by European slowdown.

Conclusion: A rare window of opportunity

The outlook for euros to yen in 2025 converges within a 158-170 ¥ range, with the market finally recognizing the structural shift in cycles. The Bank of Japan is leaving years of near-zero money behind, while the ECB continues to cut. The yield gap, which was two points a year ago, will approach 1.25 points, eliminating the classic incentive to finance in yen to seek gains in euros.

For the first time in nearly two decades, this is a market where carry trade is no longer a one-way street. That’s why the structural trend favors a gradual appreciation of the yen against the euro. It’s a good time to position in yen during rebounds toward 165-170 ¥, aiming for targets at 160-162 ¥ and maintaining clear stops at 171 ¥. The fundamental bias has definitively shifted in favor of the Japanese currency.