EUR/JPY Rebounds as ECB Lifts Euro, Technicals Cap Upside

Key Moments

EUR/JPY Rebounds in Early European Trade

EUR/JPY is firmer around 184.80 in early European dealings on Monday, recovering after four consecutive sessions of losses. The cross remains in a consolidation phase, as price action stays beneath the middle line of the Bollinger Bands on the daily chart, while the Relative Strength Index (RSI) holds in neutral territory. Immediate downside support is identified at 184.30, with nearby resistance at 185.30.

The latest uptick in the pair comes amid a firmer tone in the Euro (EUR) against the Japanese Yen (JPY), supported by hawkish commentary from European Central Bank (ECB) officials.

ECB Officials Signal Potential for Further Tightening

Over the weekend, ECB Governing Council member Yannis Stournaras remarked that a modest increase in interest rates could restrain inflation without harming the broader economy. On Friday, fellow Governing Council member Boris Vujcic noted that any decision on a possible rate hike in June would depend on forthcoming data.

These remarks have underpinned the Euro, contributing to the current stabilization in EUR/JPY after its recent pullback.

Focus on Japan’s Upcoming GDP Reading

Attention now turns to the preliminary estimate of Japan’s first-quarter (Q1) Gross Domestic Product (GDP), due on Tuesday. Consensus expectations point to a 0.4% expansion in Q1, compared with the previous 0.3% reading. Evidence of improving growth conditions in Japan could help curb near-term weakness in the Yen and potentially limit further gains in EUR/JPY.

Technical Picture: Neutral Bias Below Bollinger Midpoint

On the daily timeframe, EUR/JPY is trading just beneath the middle line of the Bollinger Bands, leaving the short-term outlook neutral to mildly constrained while price remains below this technical marker. There is still room on the upside toward the upper Bollinger band if buyers regain control.

The 14-day RSI stands at 47.75, hovering close to the 50 threshold and signaling an absence of a strong directional bias after the recent decline.

On the downside, the first technical floor is the 100-day simple moving average at 184.30. Should selling pressure intensify, a more prominent support zone is seen near the May 7 trough at 183.50. Below that, the lower Bollinger band at 182.85 is the next key area to monitor.

On the topside, a daily close above the Bollinger middle band at 185.30 would help ease immediate downside risks and could open a move toward the February 9 peak at 186.24. Beyond that, the next notable barrier comes in at the upper Bollinger band, positioned at 187.78.

Japanese Yen: Core Drivers and Market Role

What moves the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

Impact of Bank of Japan policy

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 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.

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.