EUR/JPY Near Multi-Decade Highs as Yen Risks Persist

Key Moments:

Rangebound Trade Near Recent Multi-Decade Peak

The EUR/JPY pair is trading sideways during the Asian session on Tuesday, failing to build meaningfully on the prior day’s recovery from the 186.25 area, which marked a one-week low. The cross is fluctuating in a narrow corridor around the 187.20-187.25 zone, leaving it virtually unchanged on the day and still close to the highest level since August 1990 recorded last Friday.

Fundamental Drivers: Weaker Yen Meets Policy and Intervention Constraints

The Japanese Yen is edging lower after a Reuters report indicated that the Bank of Japan is increasingly likely to keep interest rates unchanged at its upcoming April meeting. At the same time, market participants remain focused on economic risks linked to the Middle East conflict and the threat to energy supplies amid ongoing disruptions to shipping flows through the Strait of Hormuz. These concerns are working in favor of EUR/JPY, lending support to the cross.

However, expectations that the BoJ will signal its willingness to raise rates in June, as higher imported energy costs cloud the inflation outlook, are limiting the extent of Yen weakness. In addition, speculation that Japanese authorities could intervene to curb further depreciation in the domestic currency is discouraging aggressive bearish Yen positioning. A modest uptick in the US Dollar is also weighing on the Euro, reinforcing the ceiling on immediate upside in EUR/JPY.

Technical Picture: Bullish Structure Intact Above Key Moving Average

From a technical standpoint, the recent move above the 185.00 psychological barrier, combined with multiple rebounds from the 100-day Exponential Moving Average, keeps the overall bias tilted to the upside for EUR/JPY. The Moving Average Convergence Divergence indicator remains in positive territory and its histogram continues to exhibit a constructive profile. At the same time, the Relative Strength Index is hovering near 64, signaling firm but not yet overstretched buying momentum.

Initial support is reinforced by the 100-day EMA around 183.04. A deeper pullback toward this area would likely draw dip-buying interest as long as the broader bullish configuration remains in place. Provided the cross does not close decisively below this floor, the technical backdrop suggests that any consolidation above the moving average is more likely to represent a pause within the prevailing uptrend rather than the start of a bearish reversal.

Key Technical Reference Levels

Background: Japanese Yen Overview

What drives the Japanese Yen?

The Japanese Yen is one of the most actively traded currencies globally. Its valuation is shaped by the performance of Japan’s economy, Bank of Japan policy decisions, the spread between Japanese and US bond yields, and broader risk sentiment among market participants, among other factors.

Impact of Bank of Japan policy on the Yen

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ’s ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Role of yield differentials and risk sentiment

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.