EUR/JPY 2025: When is the right time to exchange euros for yen?

The volatility of the EUR/JPY pair during 2025 so far reflects a transitioning market. The cross has fluctuated between a high of 164.2¥ recorded on May 1 and a low of 155.6¥ reached on February 27, demonstrating that the market is still digesting the fundamental changes in interest rate dynamics between Japan and the Eurozone. Today, it trades near 163.4¥, but this figure masks a deeper reality: investors are recalibrating their positions as one of the most profitable strategies of the last decade unravels.

The dismantling of the carry trade and the resurgence of the yen as a safe haven

For years, the yield differential between the yen and the euro was immediately understandable: investors borrowed in yen at near-zero rates and bought euro-denominated assets with substantially higher yields. That arbitrage was virtually one-way. However, the Bank of Japan has ended that boom. After raising its benchmark from 0.25% to 0.50% in January — the highest level since 2008 — markets priced in a rise to 0.75% in summer and 1% before autumn. Each increase implemented by Tokyo compresses the margins of the strategy and reduces the supply of yen available to export toward higher-yielding assets.

At the same time, the yield gap with the Eurozone narrows from the European side. The ECB has cut its deposit facility from 4% to 2.25% through three reductions (January 30, March 12, and April 17), anticipating an economic slowdown and receding inflation. Market projections suggest European rates will fall to 2% before Christmas, reducing the differential by just over one percentage point. At that level, the incentive to finance in yen to buy euros practically disappears.

What emerges is a structurally stronger yen, but with wide fluctuations driven by risk aversion. The yen functions as a safe-haven asset because Japan maintains a net creditor position globally, does not depend on external financing, and has a gigantic, highly liquid foreign exchange market. When uncertainty arises — US tariffs, stock market corrections, geopolitical shocks — investors liquidate their euro positions in exchange for yen. When risk appetite returns, the euro revalues.

Five events that have defined 2025 volatility

The path of EUR/JPY from January to May can be understood by analyzing the shocks it has experienced. In February, the announcement of reciprocal US tariffs — a general 10% levy on imports and an additional 20% on goods from the EU — triggered demand for safe-haven assets. The pair plummeted to 155.6¥ within days. Subsequently, the formal implementation of those tariffs in April solidified risk aversion, although the market had already priced in the event, limiting the new impact.

The counterpoint came in May when China injected massive monetary stimulus. Beijing lowered its 7-day repo rate to 1.40% and allowed reserve requirements to decrease, injecting liquidity into the system. That move boosted Asian markets, reactivated risk appetite, and discouraged yen buying. EUR/JPY jumped to 164.2¥. Meanwhile, the yen strengthened with each Bank of Japan announcement while the ECB persisted in its cycle of cuts, confirming the divergence that favors the yen in medium-term.

Technical outlook and expected range for the end of 2025

The daily chart shows a cross maintaining a moderate bullish bias since early March, but with signs of momentum exhaustion. The price trades above the main moving average at 161¥, confirming the trend, but recent candles show narrow bodies clustered near the upper band of the Bollinger (resistance at 164.0¥; moving average at 162.5¥). This setup is classic for a pause or correction before a range expansion.

The 14-session RSI has retreated from 67 to 56, moving away from overbought territory and drawing a bearish divergence with the May 1 high. The channel itself has narrowed, another indicator anticipating a sharper move when volatility reactivates. Immediate support is at the Bollinger middle band (162.5¥) and further down at the confluence of the lower band with the moving average, near 161¥. A break below would open the way toward 159.8-160¥. On the upside, holding above 164.2¥ would attract demand toward 166-168¥.

Institutional projections for the end of 2025 converge within a broad range. LongForecast targets 165-173¥, CoinCodex indicates 166.08-171.94¥, and Traders Union projects 165.64¥, while Bankinter suggests a range of 160-170¥. Although methodologies differ, consensus points to the pair ending the year pressured toward the lower or middle part of the 160-170¥ range, with the base scenario near 162¥.

Investment strategies: smartly converting euros to yen

The yield differential that historically favored the euro is now in terminal decline. This makes yen positions attractive for the coming quarters, provided they are executed with discipline.

Short-term (3-6 months): The cross oscillates within a 160-170¥ channel. An effective tactic is to sell euros and buy yen whenever the quote approaches 165-170¥, aiming for 162¥ as a target with a disciplined stop above 171¥. Active traders can exploit quick swings triggered by Bank of Japan announcements, which often cause movements of one or two yen in days prior to meetings.

Medium-term (end of 2025): Accumulating yen in tranches reduces the risk of entering at a single point. Buying whenever the cross exceeds 163-164¥ allows averaging the price and taking advantage of corrections. For those needing to hedge euro-denominated flows, setting forwards or deposits in yen near current levels is prudent; the cost of that hedge decreases as the yield differential narrows.

Collect profits: If after the Bank of Japan’s expected hikes in summer and autumn the cross falls to 160-162¥, it’s advisable to lock in at least part of the gains, keeping the rest as protection against geopolitical shocks, which historically favor the yen.

Risks that could divert the trajectory

An unexpected rise in European core inflation could halt ECB rate cuts, prolonging the euro’s yield premium. A prolonged stock market rally would reactivate the carry trade and push the pair toward the upper part of the range. Alternatively, if the Bank of Japan pauses its rate hikes due to an unforeseen drop in Japanese inflation, the main structural support for the yen would be removed.

On the trade front, a new round of tariffs between the US and the EU would send the yen soaring toward 158-160¥, while any easing of trade tensions could lead to rebounds toward 167-168¥.

Conclusion: the window of opportunity is open

For the first time in nearly two decades, the carry trade is no longer a one-way street. The convergence of divergent monetary policies — the Bank of Japan raising rates while the ECB lowers — creates a structural gap that should gradually but persistently favor the yen throughout 2025. The EUR/JPY pair reflects this transition through wide oscillations between 160 and 170¥, but the underlying bias points toward lower values as the year progresses.

It is a good time to build yen positions, taking advantage of rebounds toward 165-170¥, with targets at 160-162¥ and disciplined stops at 171¥. Patience and risk control will be essential to properly capitalize on this opportunity.