EUR/JPY 2025: Should you switch from euros to yen? Full analysis before the end of the year

The question many investors are asking in May 2025 is straightforward: Is it worth building a position in yen while the euro loses traction? The answer requires understanding what has happened with this currency pair in the first four months of the year and where it is headed before the end of 2025.

What has happened with EUR/JPY since January

The euro-yen cross has been far from boring. It started 2025 at 161.7 ¥ per euro, fell to 155.6 ¥ on February 27, and rebounded to 164.2 ¥ on May 1. Today, it trades around 163.4 ¥. These swings of more than eight yen in four months reflect a clear battle: the yen regains its status as a safe haven while the euro faces increasing pressure.

Five key events explain all this volatility:

The Bank of Japan tightens the leash. In January, the BoJ raised its benchmark rate from 0.25% to 0.50%, the highest level since 2008. The yen strengthened instantly, although the effect did not last because European yields remained much more attractive.

Washington launches a tariff attack. In February, the U.S. announced a 10% tariff on all imports and an additional 20% for goods from the EU. Fear of a trade war spikes demand for safe assets: investors flee to the yen, and EUR/JPY drops to its annual low.

The yen is crisis money. Japan is a global net creditor and does not depend on external financing. When storms hit, investors sell risk assets and buy yen. Additionally, many traders borrow in yen when markets are good; as conditions deteriorate, they repay those loans and buy yen, fueling its appreciation. The yen market is colossal and extremely liquid: it is the easiest Asian currency to buy instantly when alarms sound.

The ECB opens the floodgates to lower rates. In three moves (January 30, March 12, and April 17), the ECB cut its deposit facility from 4% to 2.25%. Each reduction halted euro rebounds against the yen.

Trade tensions materialize in April. When U.S. tariffs took effect, risk aversion solidified, but the impact on EUR/JPY was contained because markets had already priced it in; the pair oscillated between 158 and 161 ¥ that week.

China injects stimulus in May. Beijing reduces the 7-day repo rate to 1.40% and eases reserve requirements. Appetite for risk returns: investors sell (defensive currency) yen and buy higher-yielding assets. EUR/JPY rises to 164.2 ¥ on May 1.

The curve towards the end of the year: What changes for the rest of 2025?

The upcoming scenario depicts a definitive cycle change. Markets price in that the Bank of Japan will raise its rate to 0.75% in summer and to 1% in autumn. It’s not a radical shift, but enough to curb the carry trade that has pressured the yen for years. Each increase in Tokyo reduces the profitability of financing in yen to buy better-paying assets, so the supply of yen in the market decreases and the currency finds structural support.

In the eurozone, the opposite occurs. With inflation falling and growth stuck due to tariffs, the ECB will likely raise rates to 2% before Christmas. This move will narrow the yield differential with Japan to just over one percent, a level that no longer justifies moving capital to the euro when geopolitical storms arrive.

The most probable outcome is an EUR/JPY cross confined within a wide range but with a long-term downward bias. When markets rest and risk appetite returns, the euro should hold resistance above 165 ¥. When a shock appears (strong U.S. inflation, new tariffs, stock market correction), the yen will regain its safe-haven role and could push the pair toward 158-160 ¥.

Our central scenario places EUR/JPY near 162 ¥ at the end of 2025, with a structural advantage toward a stronger yen if the BoJ confirms that its upward cycle continues in 2026.

Is this the right moment to switch from euros to yen? Practical strategies

Short term (3 to 6 months): Sell on rebounds

The pair has been moving within a 160-170 channel since the beginning of the year. Whenever the quote reaches 165-170, it makes sense to sell euros and buy yen aiming for 162 as a target, with a disciplined stop at 171. The days before BoJ meetings generate movements of one or two yen; active traders can exploit these oscillations with derivatives or smaller contracts.

Medium term (end of 2025): Accumulate patiently

Investment bank forecasts converge at 160-170 by year-end, while some optimistic algorithmic models reach 170-173. A prudent tactic is to buy yen in tranches: each time EUR/JPY exceeds 163-164, accumulate position averaging the price. Those needing euro cash flow hedges can lock in forwards or deposits in yen near current levels; the cost is lower as the interest rate differential narrows.

When to lock in profits

If the pair falls toward 160-162 after the expected BoJ hikes in summer and autumn, it’s wise to take at least part of the gains, leaving the rest as protection against geopolitical shocks that historically favor the yen.

Technical outlook: Pause signals in the short term

The daily EUR/JPY chart maintains a moderate bullish bias, but indicators suggest momentum is waning. The price trades above the main moving average (around 161), confirming an uptrend since early March. However, recent candles are narrow-bodied and clustered near the upper edge of the Bollinger band (upper band 164.0; average 162.5), a classic sign of lack of buying energy.

The 14-session RSI is at 56 after touching 67 last week: it leaves the overbought zone and shows a slight bearish divergence with the May 1 high. The channel has narrowed compared to March, hinting at a sharp move when it re-expands.

Immediate support: Bollinger middle at 162.5; below that, confluence of lower band and moving average around 161. Breaking 161 opens the door to 159.8-160. Resistance key: 164.2; a clear close above would encourage movement toward 166-168.

Technical summary: The bullish tone remains dominant, but it’s wise to watch for a pullback as indicators unwind.

Forecasts from different analysts for May 2025

These portals use different methodologies: some offer specific monthly ranges, others present broad annual bands detected by algorithms, and some publish year-end projections. The convergence in the 160-173 ¥ zone is notable.

Risks that could change the outlook

An unexpected pause by the BoJ if Japanese inflation subsides, an unforeseen rise in European core inflation that halts ECB cuts, or a prolonged stock rally reigniting the carry trade could push the pair back to the upper part of the range. Maintaining clear stops and reviewing exposure after each central bank meeting is essential.

Trade risks also matter: a new round of tariffs between the U.S. and the EU could push the yen toward 158-160 ¥, while any gesture of détente could lead to rebounds toward 167-168 ¥.

Historical context: EUR/JPY since 1999

Since its inception, EUR/JPY has witnessed the yen’s strength during crises and euro fluctuations amid European challenges. The yen gained ground during 2008 due to its safe-haven status, while the euro depreciated because of eurozone instability in the 2010s. Recent years saw a gradual euro appreciation supported by European recovery and BoJ expansionary policies.

Today, with the BoJ raising rates and the ECB cutting them, the pair trades in 160-165 ¥, again reflecting the tug-of-war between a yen regaining its safe-haven role and a euro pressured by European slowdown.

Conclusion: The first window in nearly two decades

Forecasts for EUR/JPY at year-end 2025 converge at 158-170 ¥, reflecting a market finally accepting the cycle change: the Bank of Japan ends with virtually free money and the ECB lowers rates. The yield gap, which a year ago was around two points, will be reduced to just over one, removing the classic incentive to finance in yen to buy euros.

Added to this is the safe-haven condition of the Japanese currency when trade tensions rise. With the pair still bouncing between 160 and 170 ¥, it’s a good time to build yen positions on rebounds toward 165-170 ¥, aiming for 160-162 ¥ as a target and maintaining risk control at 171 ¥.

For the first time in nearly two decades, the carry trade is no longer a one-way street. This suggests a downward, albeit gradual, trend for EUR/JPY for the rest of the year. Those considering switching from euros to yen have the best opportunity in years to do so with prudence and patience.