EUR/JPY Price Forecast: Why Has the Pair Fallen Below 176.00 After Opening With a Bullish Gap?

A test of the 12-month low at 175.10 may be ahead for EUR/JPY.
Weak momentum persists, as indicated by the 14-day Relative Strength Index near 33.
At 176.69, the nine-day EMA presents the first resistance hurdle.

A recovery in EUR/JPY interrupts three days of declines, with the cross trading around 175.90 in Monday’s Asian session. Despite the rebound, the daily chart retains a bearish bias as the pair continues to trade within a descending channel.

Upside attempts in EUR/JPY remain constrained, with the cross trading beneath both the nine- and 50-period Exponential Moving Averages (EMAs) and the shorter EMA positioned below the longer one. This configuration maintains a bearish near-term outlook. Meanwhile, a 14-day Relative Strength Index (RSI) reading around 33 points to continued weak momentum, rather than outright oversold conditions.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

On the downside, the 12-month low of 175.10 recorded on 23 October may come under test, ahead of the descending channel’s lower boundary around 175.00. A break beneath this confluence support zone would leave EUR/JPY open to a move towards the 15-month low at 169.72.

For EUR/JPY to advance, the first hurdle is the nine-day EMA at 176.69, ahead of the descending channel’s upper boundary near 178.60. The 50-day EMA at 179.38 provides the next resistance level. Clearing this medium-term price average would trigger a bullish reversal, supporting a move towards the all-time high of 187.95 recorded on 17 April.

Chart Analysis EUR/JPY — EUR/JPY: What Does the Daily Chart Indicate?

Why Is the Yen Strengthening as Risk Aversion Persists and Japan’s Inflation Exceeds the BoJ Target?

Defensive demand continues to support the Yen as risk sentiment shifts. MUFG analysts observe that the currency “has continued to trade at stronger levels at the end of this week encouraged by more risk-off trading conditions.” Illustrating the changing market backdrop, they add that USD/JPY “fell to a low overnight of 156.08 but has since risen back up towards the 157.00-level as the sell-off in Asian equity markets reversed,” highlighting the Yen’s safe-haven appeal.

Alongside these market developments, domestic inflation has also drawn attention. Deutsche Bank notes that “in Japan, September inflation rose as expected overnight, with core CPI accelerating to a nine-month high of +2.1% y/y and moving above the BoJ’s target, supported by higher energy costs and yen weakness.” A stronger Yen and core CPI above target together point to a market weighing risk-averse flows against changing domestic price dynamics.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Japanese Yen: Frequently Asked Questions

Which factors shape the Japanese Yen’s value?

Among the world’s most actively traded currencies, the Japanese Yen (JPY) takes its broad direction from Japan’s economic performance. More specific influences include the Bank of Japan’s policy, the gap between Japanese and US bond yields, and traders’ appetite for risk, alongside other factors.

Why do Bank of Japan decisions matter for the Japanese Yen?

Currency control forms part of the Bank of Japan’s mandate, making its actions an important influence on the Yen. Direct intervention in currency markets has occasionally been used by the BoJ, usually to weaken the Yen. However, political concerns among Japan’s main trading partners discourage frequent intervention. Between 2013 and 2024, the BoJ’s ultra-loose monetary policy weakened the Yen against its major peers as the policy gap between the Bank of Japan and other leading central banks widened. More recently, a gradual withdrawal of that ultra-loose policy has provided some support to the currency.

Why does the Japanese–US bond yield gap matter for the Yen?

By maintaining ultra-loose monetary policy over the last decade, the BoJ increasingly diverged from other central banks, most notably the US Federal Reserve. The resulting widening in the yield differential between 10-year US and Japanese bonds favoured the US Dollar over the Japanese Yen. That gap is now narrowing as the BoJ’s 2024 decision to gradually move away from ultra-loose policy coincides with interest-rate cuts by other major central banks.

Why does the Japanese Yen respond to shifts in risk sentiment?

During periods of market stress, investors are more inclined to move funds into the Japanese Yen, which is widely regarded as a safe-haven investment owing to its perceived reliability and stability. Consequently, market turbulence is likely to lift the Yen against currencies considered riskier investments.