EUR/JPY Price Forecast: Constructive outlook prevails above 174.50
- EUR/JPY softens near 174.75 in Monday’s early European session.
- A positive view of the cross prevails above the 100-day EMA, with the bullish RSI indicator.
- The immediate resistance level is seen in the 175.30; the first support level to watch is 174.05.
The EUR/JPY cross loses ground around 174.75 during the early European session on Monday. The Japanese Yen (JPY) strengthens against the Euro (EUR) amid the safe-haven flows as the US government risks a shutdown. However, political uncertainty in Japan might cap the upside for the JPY. Japan's Liberal Democratic Party (LDP) leadership election will take place on 4 October and the outcome could delay the next interest rate hike by the Bank of Japan (BoJ) if a candidate with dovish views is selected.
Technically, the constructive outlook of EUR/JPY remains in place, with the price being well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upward momentum is supported by the 14-day Relative Strength Index, which stands above the midline near 63.45. This suggests that further upside looks favorable in the near term.
On the bright side, the crucial upside barrier emerges at the upper boundary of the Bollinger Band of 175.30. Sustained trading above this level could pick up more momentum and aim for 175.43, the high of July 17, 2024. Further north, the next resistance level is seen at the 176.00 psychological level.
On the downside, the initial support level for EUR/JPY is located at 174.05, the low of September 23. Any follow-through selling below this level could see a drop to 173.48, the low of September 19. The additional downside filter to watch is 172.00, the lower limit of the Bollinger Band.
EUR/JPY daily chart
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Japanese Yen FAQs
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.
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.
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.
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