Should You Buy Yen in 2025? Euro Yen Exchange Analysis and Its Outlook

The euro-yen exchange rate dynamics during 2025 have shown how capital flows respond more to geopolitical uncertainty than to yield differentials. Since the beginning of the year, the EUR/JPY pair has fluctuated by nearly eight percentage points, starting at 161.7 yen per euro, hitting lows of 155.6¥ in February, and reaching highs of 164.2¥ in May, currently trading around 163.4¥.

The Pillars Shaping the EUR/JPY Pair in 2025

Divergent Monetary Policies

The Bank of Japan raised its benchmark rate from 0.25% to 0.50% in January, the highest level since 2008. Although initially strengthening the yen, the effect was short-lived because European yields continued to far outpace Japanese yields. Simultaneously, the European Central Bank implemented three consecutive rate cuts (January, March, and April), reducing its deposit facility from 4% to 2.25%, which limited euro rebounds after each adjustment.

Global Trade Tensions

Washington announced in February a general 10% tariff on imports and an additional 20% levy on products from the European Union. This announcement triggered immediate demand for safe-haven assets, pushing the EUR/JPY to its lowest of the year (155.6¥) just days later. The effective implementation in April solidified risk aversion, although markets had already anticipated much of the impact.

The Yen as a Safe-Haven Currency

In times of financial stress, the yen appreciates for structural reasons: Japan is a net global creditor and does not depend on external capital. Additionally, many traders finance yen positions when optimism prevails; when uncertainty arises, they liquidate these positions by buying back yen, exerting upward pressure on the currency. The depth and liquidity of the yen market make it the most accessible Asian currency for urgent transactions.

Chinese Monetary Stimulus in May

Beijing injected liquidity by lowering its 7-day repo rate to 1.40% and easing bank reserve requirements. This stimulus revived risk appetite in Asian markets, causing investors to abandon defensive yen positions. Consequently, the euro-yen exchange rate quickly climbed toward 164.2¥ on May 1.

Outlook for the Euro-Yen Exchange Rate Toward Year-End

Convergence of Monetary Cycles

The pair’s expected trajectory will mainly depend on whether the yen manages to consolidate gains against a euro losing rate support. The market discounts that the Bank of Japan will raise its rate to 0.75% during summer and to 1% in autumn. Although not a drastic shift, it is enough to contain the carry trade that has historically pressured the Japanese currency.

Meanwhile, the eurozone faces opposite dynamics. With inflation easing and growth limited by tariffs, the ECB will likely cut rates to 2% before Christmas. This narrow yield differential no longer compensates for the risk of reallocating capital into euros amid global instability.

Base Scenario

The euro-yen exchange rate will probably fluctuate within a broad range but with a gradually downward trend. During calm periods and risk appetite recovery, resistance is expected above 165¥. In case of shocks (strong US inflation data, new trade tariffs, or stock market corrections), the yen will resume its defensive role, potentially pushing the pair toward the 158-160¥ zone. The central forecast for the end of 2025 places EUR/JPY near 162¥, with a slight bias toward a strengthened yen if the BoJ confirms continued hikes in 2026.

Technical Analysis of EUR/JPY

The daily chart shows a moderate bullish bias, though with signs of buyer fatigue. The price remains above its main moving average (approximately 161¥), confirming the upward trend since March. However, recent candles show narrow bodies clustered near the upper edge of the Bollinger Bands (max 164.0¥; average 162.5¥), indicating weakening momentum.

The narrowing channel is a classic pattern preceding sharp movements. The 14-session Relative Strength Index is at 56, having retreated from 67 last week, showing bearish divergence with the May 1 high. This reinforces the scenario of a pause or short-term correction.

Key supports: Bollinger middle band at 162.5¥ and confluence with the lower band around 161¥; losing this level would open the door to 159.8-160¥. Main resistance: 164.2¥; a decisive close above would stimulate movement toward 166-168¥.

Projections from Specialized Institutions (May 2025)

These projections converge on a broad range of 160-173¥, reflecting different methodologies but a general consensus on yen strength.

Investment Strategies for Buying Yen

Short-Term Approach (3-6 Months)

The EUR/JPY pair has established an operational channel of 160-170¥ since the beginning of the year. Tactically, each approach to 165-170¥ presents an opportunity to sell euros and buy yen with an initial target at 162¥ and disciplined stop at 171¥. Bank of Japan meetings often generate volatility of 1-2 yen; active traders can capitalize through low-volume futures or options spreads.

Medium-Term Approach (End of 2025)

Investment bank projections converge on 160-170¥ for year-end. Prudent tactic: accumulate yen in tranches, buying each time EUR/JPY exceeds 163-164¥, averaging the entry price and reducing risk. Those needing euro cash flow hedges can lock in forwards or deposits in yen near current levels; costs decrease as the rate differential narrows.

Profit Management

If the euro-yen exchange rate reaches 160-162¥ after expected BoJ hikes in summer and autumn, it is advisable to realize at least partial gains, leaving some position as protection against potential geopolitical shocks that historically favor the yen.

Main Risks to Consider

• Unexpected BoJ pause: if Japanese inflation drops sharply, limiting its rate hike cycle.
• European inflation rebound: could accelerate ECB rate cuts more than expected.
• Sustained stock rally: could reactivate carry trades, pushing the euro-yen toward the upper range.
• New trade tariffs: between the US and EU would boost the yen as a safe haven, pushing the pair toward 158-160¥.
• Trade détente: would have the opposite effect, allowing rebounds toward 167-168¥.

Maintaining clear stops and reviewing exposure after each central bank meeting remains essential.

Historical Context of the Euro-Yen Exchange Rate

Since its inception in 1999, the EUR/JPY pair has fluctuated between periods dominated by the yen as a safe haven and phases of euro appreciation during European recoveries. During the 2008 financial crisis, the yen strengthened due to its defensive status while the euro depreciated amid Eurozone instability. The subsequent recovery and expansionary policies of the Bank of Japan favored a gradual euro appreciation over the years.

Today, with the BoJ again raising rates and the ECB cutting, the pair returns to historical dynamics where the yen regains prominence. This evolution demonstrates how divergences in monetary policy and macroeconomic factors continually shape the euro-yen exchange rate.

Conclusion

Projections for the end of 2025 converge on the euro-yen exchange rate moving within 158-170¥, reflecting a market that is finally digesting the cycle change: the Bank of Japan abandons near-zero interest rates while the European Central Bank reduces rates. The yield differential, which a year ago was around two percentage points, will converge to just over one, removing the classic incentive to finance in yen to buy euros.

Coupled with the yen’s defensive role amid trade tensions, the structural bias now favors the yen. It is a good time to buy yen on rebounds toward 165-170¥, targeting 160-162¥ as the goal, with risk control at 171¥. The main risk lies in the BoJ halting its hikes or European inflation resurging, but the medium-term trend suggests a gradual downward trajectory for EUR/JPY for the remainder of the year.

For the first time in nearly two decades, carry trade ceases to be a one-way path, confirming that the euro-yen exchange rate points toward a moderate yen revaluation with well-defined risk limits.