EUR/JPY approaches one-year high, weaker yen boosts rebound but expectations of rate hikes may limit upside
2025-07-03 15:28:17
EUR/JPY continued to rise this week and rose again on Thursday, currently trading around 169.75, up about 0.10%. The main factor driving this trend is the weakening of the yen, due to the improvement of global market risk sentiment and the cautious policy stance of the Bank of Japan (BoJ).
The United States and Vietnam reached a new round of tariff agreement, easing market concerns about trade tensions. This development boosted market interest in high-risk assets and weakened the safe-haven demand for the yen. At the same time, the Bank of Japan continued to maintain a dovish tone, reinforcing the recent weakness of the yen.
Hajime Takata, a board member of the Bank of Japan, said on Thursday that the current rate hike cycle is only a "temporary pause" and tightening may continue in the future.
This statement, combined with signs of continued spread of inflation in Japan, has led the market to believe that the Bank of Japan may raise interest rates again this year, thereby to some extent limiting further depreciation of the yen and curbing the upward momentum of EUR/JPY.
An Asian currency analyst pointed out: "Although the yen is under short-term pressure, there is an expectation of a policy shift in the medium term, and investors should pay attention to changes in the exchange rate differential between the euro and the yen."
As for the euro, the euro's upward momentum is limited due to the overall dovish stance of the European Central Bank (ECB). Although officials stressed that the easing cycle is coming to an end, they did not rule out the possibility of further interest rate cuts in the future, especially against the backdrop of inflation that may continue to be below the 2% target.
The market generally believes that there is a temporary divergence in the policy paths of the ECB and the Bank of Japan, which has become one of the main reasons for the rise of the euro against the yen.
The market will next focus on the final value of the Eurozone services PMI, but it is expected to have limited impact on the exchange rate. The market is more likely to focus on whether the Bank of Japan will release stronger tightening signals in the next two months, as well as the latest assessment of inflation trends by the European and American central banks.
From a technical perspective, EUR/JPY is currently close to the 170.00 mark, a high in the past year, and the short-term bullish trend remains. The daily chart shows that the exchange rate is firmly above the 5-day and 10-day moving averages, the MACD red column is expanding, the momentum is positive, and the RSI is near 65, not overbought but with strong momentum.
The short-term resistance level is located in the 170.00 and 170.30 areas, which are key psychological and structural pressure levels. If it is effectively broken, it will open up a further upward channel, with the target possibly pointing to 171.00 or even the 2023 high of 172.00. The support below is located in the 168.80 and 168.20 range. If it falls below, the short-term bullish structure may be destroyed.
Editor's opinion:
The rise of EUR/JPY benefits from policy divergence and risk appetite, but the sustainability still needs to be cautious. Although the yen is under pressure, the Bank of Japan has clearly released a signal that it may raise interest rates in the future. In addition, the European Central Bank has not completely ended the easing cycle, which may form a reverse suppression in the future market. The exchange rate may test the 170 mark in the short term, and wait for the PMI data and the Fed's non-farm data before making a direction choice.
The United States and Vietnam reached a new round of tariff agreement, easing market concerns about trade tensions. This development boosted market interest in high-risk assets and weakened the safe-haven demand for the yen. At the same time, the Bank of Japan continued to maintain a dovish tone, reinforcing the recent weakness of the yen.
Hajime Takata, a board member of the Bank of Japan, said on Thursday that the current rate hike cycle is only a "temporary pause" and tightening may continue in the future.
This statement, combined with signs of continued spread of inflation in Japan, has led the market to believe that the Bank of Japan may raise interest rates again this year, thereby to some extent limiting further depreciation of the yen and curbing the upward momentum of EUR/JPY.
An Asian currency analyst pointed out: "Although the yen is under short-term pressure, there is an expectation of a policy shift in the medium term, and investors should pay attention to changes in the exchange rate differential between the euro and the yen."
As for the euro, the euro's upward momentum is limited due to the overall dovish stance of the European Central Bank (ECB). Although officials stressed that the easing cycle is coming to an end, they did not rule out the possibility of further interest rate cuts in the future, especially against the backdrop of inflation that may continue to be below the 2% target.
The market generally believes that there is a temporary divergence in the policy paths of the ECB and the Bank of Japan, which has become one of the main reasons for the rise of the euro against the yen.
The market will next focus on the final value of the Eurozone services PMI, but it is expected to have limited impact on the exchange rate. The market is more likely to focus on whether the Bank of Japan will release stronger tightening signals in the next two months, as well as the latest assessment of inflation trends by the European and American central banks.
From a technical perspective, EUR/JPY is currently close to the 170.00 mark, a high in the past year, and the short-term bullish trend remains. The daily chart shows that the exchange rate is firmly above the 5-day and 10-day moving averages, the MACD red column is expanding, the momentum is positive, and the RSI is near 65, not overbought but with strong momentum.
The short-term resistance level is located in the 170.00 and 170.30 areas, which are key psychological and structural pressure levels. If it is effectively broken, it will open up a further upward channel, with the target possibly pointing to 171.00 or even the 2023 high of 172.00. The support below is located in the 168.80 and 168.20 range. If it falls below, the short-term bullish structure may be destroyed.
Editor's opinion:
The rise of EUR/JPY benefits from policy divergence and risk appetite, but the sustainability still needs to be cautious. Although the yen is under pressure, the Bank of Japan has clearly released a signal that it may raise interest rates in the future. In addition, the European Central Bank has not completely ended the easing cycle, which may form a reverse suppression in the future market. The exchange rate may test the 170 mark in the short term, and wait for the PMI data and the Fed's non-farm data before making a direction choice.
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