EUR/JPY Dynamics 2025: When to Switch from Euros to Yen?

The EUR/JPY pair is caught between two opposing narratives in 2025: a Bank of Japan breaking with years of easy money versus a European Central Bank yielding to the slowdown. The question investors are asking is not just where the euro-yen exchange rate will end the year, but when is the right time to reposition.

Since the beginning of 2025, the quote has fluctuated erratically. It started the year at 161.7 ¥ per €, plummeted to 155.6 ¥ on February 27, rebounded to 164.2 ¥ on May 1, and is currently trading near 163.4 ¥. In just four months, the movement exceeds eight yen, highlighting the extreme volatility characteristic of this cross.

The Five Main Catalysts for EUR/JPY

Volatility has not been random but the result of monetary policy decisions and specific trade tensions.

The BOJ’s third rate hike marks the turning point. In January, the Japanese central bank raised its official rate from 0.25% to 0.50%, the highest since 2008. The yen immediately strengthened, but the effect was diluted because European yields remained significantly higher than Japanese ones.

US tariffs trigger risk aversion. When Washington announced in February a general 10% tariff on all imports (plus an additional 20% for EU goods), markets were scared. Demand for safe-haven assets surged, and the EUR/JPY fell to its annual low of 155.6 ¥. The yen, by its nature as a safe-haven currency—backed by Japan as a major global creditor and a large, liquid market—is the natural destination for fearful capital.

The ECB cuts rates three times. On January 30, March 12, and April 17, the ECB lowered its deposit facility from 4% to 2.25%. With the eurozone cooling and inflation easing, each cut hampered the euro’s recovery attempts.

Tariffs come into effect in April. The impact was mitigated because markets had already priced it in; the cross fluctuated between 158 ¥ and 161 ¥ that week.

Chinese monetary stimulus rekindles risk appetite. In May, Beijing injected liquidity by lowering the 7-day repo rate to 1.40%. Asian markets rebounded, risk appetite recovered, and investors stopped buying yen. The EUR/JPY quickly rose to 164.2 ¥.

The Carry Trade and Its Inevitable Decline

For nearly two decades, the carry trade—borrowing in yen at very low rates, converting to euros, and profiting from the difference—was a tailwind for EUR/JPY. But this dynamic is reversing.

The Japanese expectations curve discounts that the BOJ will raise rates to 0.75% in summer and to 1% in autumn. It’s not a drastic shift but enough to slowly dismantle the carry trade. Each increase reduces incentives to finance in yen, contracts the supply of Japanese currency in the market, and provides structural support to the yen.

Meanwhile, the ECB is likely to cut rates to 2% before Christmas. The yield differential with Japan will narrow to just over one percentage point—a level that no longer compensates for the risk of moving capital to the euro when geopolitics is unstable.

The result is an EUR/JPY that does not disappear but loses the upward tension that supported it for years. The trend will be gradually downward, with wide oscillations depending on the current risk appetite.

Technical: Signals of Pause After the Bullish Run

The daily chart shows a moderately bullish bias but with signs of increasing fatigue.

The price trades above the main moving average (around 161), confirming the upward trend since early March. However, recent candles are narrow-bodied, clustered near the upper edge of the Bollinger band (upper band 164.0; average 162.5). This setup typically anticipates a sharp move when the range expands again.

The 14-session RSI is at 56, after touching 67 a week ago. The oscillator is leaving the overbought zone and shows a slight bearish divergence with the May 1 high (164.2 ¥), reinforcing the idea of a short-term pullback or consolidation.

Immediate support: Bollinger middle band at 162.5 ¥. If that level is broken, the path opens to 159.8-160 ¥. Key resistance: 164.2 ¥; a clear close above would encourage momentum toward 166-168 ¥.

In summary: the buying tone still dominates, but it’s wise to watch for a retracement as indicators unwind.

Analyst Projections for EUR/JPY

Forecasts for the end of 2025 vary depending on methodology:

• LongForecast: 165-173 ¥
• CoinCodex: 166.08-171.94 ¥
• Traders Union: 165.64 ¥
• Bankinter: 160-170 ¥

Discrepancies reflect different approaches, but all projections fall within a 160-173 ¥ range. The most plausible baseline scenario places EUR/JPY near 162 ¥ by year-end, with a slight bias toward a stronger yen if the BOJ confirms its cycle of hikes continues into 2026.

Scenarios: When to Buy Yen, When to Sell Euros

Calm scenario. When markets are calm and risk appetite reemerges, the euro should resist above 165 ¥. At these times, flows into yen slow down.

Crisis scenario. In case of a shock—strong US inflation data, new tariffs, stock market correction—the yen regains its safe-haven role, and the pair could fall to 158-160 ¥. These are the points where yen concentration makes the most sense.

The clear strategic recommendation is: buy euros and sell yen on rebounds toward 165-170 ¥, targeting 160-162 ¥ with disciplined stops at 171 ¥.

Three Investment Strategies by Horizon

Short-term (3-6 months). The cross has been moving within a 160-170 channel since January. Each approach to 165-170 is an opportunity to sell euros and buy yen with a target at 162. Active traders can take advantage of one- or two-yen oscillations around BOJ meetings with small futures contracts.

Medium-term (until year-end). Projections converge at 160-170. A prudent tactic is to accumulate yen in tranches: buy each time the cross exceeds 163-164, averaging the price and reducing entry risk at a single point. Those needing euro cash flow hedges can set forwards or yen deposits near current levels; the cost decreases as the differential narrows.

Profit-taking. If the cross falls to 160-162 after the BOJ hikes expected for summer and autumn, it’s advisable to liquidate at least part of the gains, leaving the rest as protection against geopolitical shocks that historically favor the yen.

Risks That Could Reverse the Scenario

An unexpected pause by the BOJ if Japanese inflation subsides could push the cross back to the top of the range. An unforeseen rebound in European core inflation that halts ECB rate cuts would have a similar effect. A prolonged stock rally recycling the carry trade is also a risk.

Trade tensions deserve special mention. If a new round of tariffs between the US and EU escalates, the (safe-haven currency) yen would appreciate sharply, pushing the pair toward 158-160 ¥. But any signs of trade détente would allow rebounds toward 167-168 ¥.

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

The Historic Crossroads: From Two Decades of Carry Trade to Normalization

Since its inception in 1999, EUR/JPY has reflected the yen’s strength as a safe haven during crises and the euro’s fluctuations against European challenges. During the 2008 crisis, the yen strengthened while the euro depreciated due to economic instability. Years later, European recovery and BOJ’s easy money favored a gradual euro appreciation.

Today, we witness a break. With the BOJ raising rates and the ECB cutting them, the pair trades in 160-165 ¥, again reflecting the tug-of-war between a yen regaining its safe-haven role and a euro pressured by European slowdown.

2025 marks the first real window in nearly two decades to build, with judgment and patience, a yen position with a reasonable expectation of moderate revaluation and well-defined risk limits. The move from euros to yen will not be a day trade but a gradual repositioning that takes advantage of cross rebounds and consolidates on pullbacks.

The yield gap that a year ago was around two points will narrow to just over one. The carry trade, which was a one-way street for nearly two decades, is no longer. This suggests a slowly downward trend for EUR/JPY for the rest of 2025, with maximum volatility around monetary policy decisions and geopolitical events.