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

The forecast for the euro-yen cross in the remainder of 2025 points to a clear opportunity for those seeking exposure to the Japanese currency. After extreme volatility in the first five months of the year, marked by swings of over eight yen, the pair has moved from 161.7 ¥/€ at the start of the year to touch lows of 155.6 ¥ in February and highs of 164.2 ¥ in early May, currently trading near 163.4 ¥.

This erratic movement is not coincidental but a direct reflection of a confluence of events that have reshaped the fundamental dynamics of both currencies. The simple yet crucial question investors are now asking is: Have we passed the peak of volatility, or are there still surprises ahead?

The five pillars that have moved the yen in 2025

The first relevant event was Japan’s third monetary policy decision: the Bank of Japan raised its benchmark rate from 0.25% to 0.50%, reaching the highest level since 2008. The initial reaction was swift—the yen appreciated immediately—but short-lived, as European yields remained substantially higher. This detail is key: the rate gap remains the main gravitational factor.

The introduction of reciprocal tariffs by Washington in February fundamentally changed risk appetite. A general 10% tariff on all imports, with an additional 20% charge on goods from the EU, sparked fears of a trade war. The resulting fear boosted demand for safe assets, pushing the pair to its annual low of 155.6 ¥ on February 27. In such systemic stress contexts, the yen demonstrates its safe-haven nature: Japan is a global net creditor, not reliant on external financing, and has a colossal liquidity forex market, making it the most accessible Asian option during a crisis.

The carry trade factor further complicates the equation. Countless investors borrow in yen at near-zero rates to finance higher-yielding assets. When markets collapse, these speculators liquidate positions and repatriate capital, buying yen en masse and pushing its quote upward. This mechanism amplifies risk-averse movements.

The European Central Bank made its own decisions: three rate cuts (January 30, March 12, and April 17), bringing the deposit facility from 4% down to 2.25%. Each cut halted euro rebounds, eroding the incentive to hold the euro against its Japanese counterpart.

The lifting of US tariffs in April consolidated risk aversion sentiment, though the impact was limited as markets had already priced in expectations. However, the true catalyst arrived in May: Beijing injected monetary stimulus by lowering its 7-day repo rate to 1.40% and reducing reserve requirements. This move revitalized risk appetite in Asian markets, temporarily disabling the yen’s safe-haven role and allowing the pair to surge to 164.2 ¥ on May 1.

Structural dynamics for the second half of 2025

The real bet is understanding where monetary policies are converging. The futures market discounts that the Bank of Japan will raise its rate to 0.75% during summer and to 1% in autumn. This gradual increase marks the end of a decade of near-free money and deactivates the carry trade that has systematically pressured the yen for years.

Each upward move by Tokyo reduces the profitability of financing in yen to buy higher-yielding assets, contracting yen supply in markets and providing structural support to the currency. Simultaneously, the European Central Bank is likely to raise rates to 2% before year-end, in response to declining inflation and stagnant growth due to US tariffs.

The result is convergence of rates. The yield gap between the two economies, which a year ago was around two percentage points, will fall to just over one percent. At that level, the differential no longer compensates for the risk of reallocating capital to the euro in an unstable global context. This is the foundational scenario for a more moderate euro-yen forecast for the rest of the year.

Quotation scenarios and operational ranges

Absent disruptive geopolitical events, the cross should fluctuate within a broad range but with a gradual downward bias. When investors regain risk appetite and markets breathe easier, the euro will find resistance above 165 ¥. Conversely, any shock—an unexpected US inflation data, a new round of tariffs, or a significant stock correction—will see the yen resume its defensive role, and the pair could fall toward 158-160 ¥.

The baseline scenario points to a quote near 162 ¥ by the end of 2025, with a slight tilt toward a stronger yen if the Bank of Japan confirms its upward cycle extending into 2026. Projections from various analysis firms vary: from 165-173 ¥ to 160-170 ¥, depending on methodologies and assumptions. This dispersion is natural amid geopolitical and trade uncertainties.

Technical reading of EUR/JPY: exhaustion signals

The daily chart maintains a moderate bullish bias but with indicators suggesting a loss of momentum. The price trades above its main moving average (around 161 ¥), confirming the upward trend since March. However, recent candles show narrow bodies clustered near the upper edge of Bollinger Bands (upper band at 164.0 ¥; moving average at 162.5 ¥), indicating weakening buying demand.

The 14-period RSI stands at 56, after hitting 67 a week ago. This retreat from overbought territory, along with a bearish divergence with the May 1 high, reinforces the thesis of an imminent correction or pause in the short term.

Key technical levels are: support at the moving average (162.5 ¥) and lower confluence around 161 ¥; breaking this would open doors toward 159.8-160 ¥. On the upside, the key resistance remains at 164.2 ¥; a clear close above would encourage a move toward 166-168 ¥. The channel has narrowed since March, hinting at more abrupt moves when volatility expands again.

Practical strategies: how to position in yen

For short-term traders (3-6 months):

Within the 160-170 channel characterizing the year, each approach toward 165-170 ¥ offers opportunities to sell euros and buy yen, with an initial target at 162 ¥ and a protective stop at 171 ¥. The days before Bank of Japan meetings often generate oscillations of one or two yen that active traders can capitalize on via smaller futures or put-spread options, reducing entry costs.

For medium-term investors (end of 2025):

Consensus forecasts from investment banks converge on 160-170 ¥ by year-end. A prudent tactic is to accumulate yen gradually: buy whenever the cross exceeds 163-164 ¥, averaging the entry price and reducing the risk of a single unfavorable entry point. Those needing hedges in euro-denominated flows can set forwards or yen deposits near current levels; costs decrease as the rate differential narrows.

Profit-taking and risk management:

If the cross reaches 160-162 ¥ after the Bank of Japan’s expected upward moves in summer and autumn, it’s advisable to take at least partial profits, leaving some as protection against geopolitical shocks that historically favor the yen. Maintain clear stops and review exposure after each monetary authority decision.

Risks that could derail the scenario

An unexpected pause by the Bank of Japan if Japanese inflation subsides, or an unforeseen rise in European core inflation that halts ECB rate cuts, could push the pair back toward the upper range. A prolonged stock rally that revitalizes the carry trade also poses a problem for yen appreciation.

Trade risks deserve special mention. A new round of tariffs between the US and the EU would push the yen into its safe-haven role, pressuring the pair toward 158-160 ¥. Conversely, any signs of trade détente would have the opposite effect, allowing rebounds toward 167-168 ¥.

Historical context: two decades of EUR/JPY

Since 1999, the EUR/JPY pair has witnessed two alternating dynamics: yen strength as a safe-haven during crises and gradual euro appreciation during normal periods. During the 2008 financial crisis, the yen strengthened dramatically while the euro depreciated amid Eurozone instability. The 2010s saw yen under pressure from Japan’s expansive policies, favoring the euro.

Today, with the Bank of Japan raising rates and the ECB lowering them, the pair is again in the 160-165 ¥ zone, reflecting the ongoing tug-of-war between a yen regaining refuge status and a euro pressured by European slowdown. This cycle reminds us that macroeconomic and monetary factors are the fundamental drivers of major currency pair dynamics.

Conclusion: the 2025 yen opportunity

The euro-yen forecast for the end of 2025 converges on a range of 158-170 ¥, reflecting a market finally absorbing the cycle shift: the Bank of Japan ends the decade of near-zero rates, and the ECB reduces its benchmark. The rate gap narrows from two points to just over one, removing the classic incentive to finance in yen to buy euros. Add to this the yen’s safe-haven role during rising trade tensions.

With the pair still bouncing between 160 and 170 ¥, the right moment to take positions in yen is during rebounds toward 165-170 ¥, aiming for 160-162 ¥ as a target and maintaining risk discipline at 171 ¥. The structural bias now favors the yen. For the first time in nearly two decades, carry trade—the strategy of borrowing a low-yielding currency and converting it into a higher-yielding one—ceases to be a one-way street. This suggests a gradual downward trend for euro/yen for the rest of the year, creating the first genuine window in years to build yen positions with reasonable expectations of moderate revaluation and well-defined risk limits.